Using Weather Index Insurance to Improve Drought Response for Famine Prevention

Abstract

There is a strong link between weather and the welfare of poor populations. Low-frequency, short-term, but catastrophic weather shocks can trigger destructive coping responses to disaster-for example, withdrawal of children from school, distress sale of assets, refugee migration, crime, and severe human suffering. Moreover, these adverse impacts often persist as children's physical growth falters, and household productivity, asset accumulation, and income growth are dampened (Dercon and Krishnan 2000; Hoddinott and Kinsey 2001; Hoddinott 2006). The prospect of such shocks may also induce underinvestment in assets at risk, limiting poor households' ability to grow their way out of poverty over time (Carter and Barrett 2006). The problem originates with the difficulty poor households face in insuring covariate risk. While informal social insurance arrangements and flexible credit contracts often