The Demand for Commodity Insurance by Developing Country Agricultural Producers : Theory and an Application to Cocoa in Ghana
The author considers the benefit to agricultural producers of commodity price insurance that provides in every year-but in advance of the resolution of production and price uncertainty--a minimum price for a fixed or variable portion of production....
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2002/09/2017580/demand-commodity-insurance-developing-country-agricultural-producers-theory-application-cocoa-ghana http://hdl.handle.net/10986/19271 |
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okr-10986-192712021-04-23T14:03:42Z The Demand for Commodity Insurance by Developing Country Agricultural Producers : Theory and an Application to Cocoa in Ghana Sarris, Alexander ADEQUATE SAFETY NETS AGENTS AGRICULTURAL INSURANCE AGRICULTURAL OUTPUT AGRICULTURE ASSETS BENCHMARK BENEFICIARIES COMMODITIES CONSUMER PRICE INDEX CONSUMPTION FUNCTION CONSUMPTION SMOOTHING CONTINGENT VALUATION COVARIATE SHOCKS COVERAGE CPI CROP DIVERSIFICATION CROP INSURANCE DECISION VARIABLES DEVELOPED COUNTRIES DICHOTOMOUS CHOICE DISCOUNT RATE DROUGHT ECONOMIC BEHAVIOR EMPIRICAL ANALYSIS EQUILIBRIUM EXPECTED UTILITY EXPECTED VALUE EXPECTED VALUES EXPENDITURES EXPORTS FARM INCOME GDP HOUSEHOLD CONSUMPTION HOUSEHOLD INCOME IDIOSYNCRATIC SHOCKS INCOME INCOME RISKS INCOME SUPPORT INDEMNITY INSURANCE INSURANCE CONTRACTS INSURANCE INDUSTRY INSURANCE SYSTEMS LEISURE LIBERALIZATION LIQUIDITY LIVING STANDARDS MACROECONOMIC GROWTH OPPORTUNITY COST OPTIMIZATION PER CAPITA INCOME POLICY RESEARCH POOR POVERTY ALLEVIATION POVERTY LINE PREMIUMS PRICE FLOOR PRICE FLUCTUATIONS PRICE RISK PRICE VARIATIONS PRIVATE INSURANCE PRODUCERS PRODUCTION INPUTS PRODUCTION PATTERNS PROGRAMS PUBLIC INSURANCE REAL INCOME RECIPROCITY RISK RISK AVERSION RISK MANAGEMENT RISK MITIGATION SAFETY NETS SAVINGS SELF INSURANCE SHARECROPPING SMOOTHING CONSUMPTION TAX REVENUE TAX REVENUES TIMBER TIME SERIES UTILITY FUNCTION WEATHER PATTERNS WILLINGNESS TO PAY WTP COMMODITY PRODUCERS DEVELOPING COUNTRIES AGRICULTURAL PRODUCT MARKETING INSURANCE CASE STUDIES COCOA TRADE COMMODITY PRICES PRICE VOLATILITY INSURANCE PREMIUMS HOUSEHOLD INCOME RISK MANAGEMENT HOUSEHOLD CONSUMPTION INCOME SECURITY LIVING STANDARDS INDICATORS PRICE INDEXES PRICE MARGINS OPTION VALUE The author considers the benefit to agricultural producers of commodity price insurance that provides in every year-but in advance of the resolution of production and price uncertainty--a minimum price for a fixed or variable portion of production. Under the assumption that producers do not change their long term production and income diversification pattern, the author suggests a theoretical framework that leads to explicit formulas of the benefit in providing this type of insurance. He shows that this benefit depends not only on the actuarially fair insurance premium, but also on household-specific factors that depend on the attitudes to risk, the consumption smoothing parameters, and the household-specific exposures to income risks. The author applies the theoretical framework for Ghana, using the Ghana Living Standards Survey data to specify various classes of cocoa-producing households and monthly price data for both domestic and international prices, to formulate appropriate models for ascertaining price risks faced by producers. The author gives empirical estimates of the actuarially fair premium, and shows that they are smaller than market-based put option prices from organized exchanges. The overall benefit in providing minimum price insurance to households, however, turns out to be substantially higher than the actuarially fair premiums and the market-based put option prices. This is due to both the magnitude of the uncertainties facing the households, as well as their risk and consumption smoothing behavior. 2014-08-07T20:30:39Z 2014-08-07T20:30:39Z 2002-09 http://documents.worldbank.org/curated/en/2002/09/2017580/demand-commodity-insurance-developing-country-agricultural-producers-theory-application-cocoa-ghana http://hdl.handle.net/10986/19271 English en_US Policy Research Working Paper;No. 2887 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research Africa Ghana |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
ADEQUATE SAFETY NETS AGENTS AGRICULTURAL INSURANCE AGRICULTURAL OUTPUT AGRICULTURE ASSETS BENCHMARK BENEFICIARIES COMMODITIES CONSUMER PRICE INDEX CONSUMPTION FUNCTION CONSUMPTION SMOOTHING CONTINGENT VALUATION COVARIATE SHOCKS COVERAGE CPI CROP DIVERSIFICATION CROP INSURANCE DECISION VARIABLES DEVELOPED COUNTRIES DICHOTOMOUS CHOICE DISCOUNT RATE DROUGHT ECONOMIC BEHAVIOR EMPIRICAL ANALYSIS EQUILIBRIUM EXPECTED UTILITY EXPECTED VALUE EXPECTED VALUES EXPENDITURES EXPORTS FARM INCOME GDP HOUSEHOLD CONSUMPTION HOUSEHOLD INCOME IDIOSYNCRATIC SHOCKS INCOME INCOME RISKS INCOME SUPPORT INDEMNITY INSURANCE INSURANCE CONTRACTS INSURANCE INDUSTRY INSURANCE SYSTEMS LEISURE LIBERALIZATION LIQUIDITY LIVING STANDARDS MACROECONOMIC GROWTH OPPORTUNITY COST OPTIMIZATION PER CAPITA INCOME POLICY RESEARCH POOR POVERTY ALLEVIATION POVERTY LINE PREMIUMS PRICE FLOOR PRICE FLUCTUATIONS PRICE RISK PRICE VARIATIONS PRIVATE INSURANCE PRODUCERS PRODUCTION INPUTS PRODUCTION PATTERNS PROGRAMS PUBLIC INSURANCE REAL INCOME RECIPROCITY RISK RISK AVERSION RISK MANAGEMENT RISK MITIGATION SAFETY NETS SAVINGS SELF INSURANCE SHARECROPPING SMOOTHING CONSUMPTION TAX REVENUE TAX REVENUES TIMBER TIME SERIES UTILITY FUNCTION WEATHER PATTERNS WILLINGNESS TO PAY WTP COMMODITY PRODUCERS DEVELOPING COUNTRIES AGRICULTURAL PRODUCT MARKETING INSURANCE CASE STUDIES COCOA TRADE COMMODITY PRICES PRICE VOLATILITY INSURANCE PREMIUMS HOUSEHOLD INCOME RISK MANAGEMENT HOUSEHOLD CONSUMPTION INCOME SECURITY LIVING STANDARDS INDICATORS PRICE INDEXES PRICE MARGINS OPTION VALUE |
| spellingShingle |
ADEQUATE SAFETY NETS AGENTS AGRICULTURAL INSURANCE AGRICULTURAL OUTPUT AGRICULTURE ASSETS BENCHMARK BENEFICIARIES COMMODITIES CONSUMER PRICE INDEX CONSUMPTION FUNCTION CONSUMPTION SMOOTHING CONTINGENT VALUATION COVARIATE SHOCKS COVERAGE CPI CROP DIVERSIFICATION CROP INSURANCE DECISION VARIABLES DEVELOPED COUNTRIES DICHOTOMOUS CHOICE DISCOUNT RATE DROUGHT ECONOMIC BEHAVIOR EMPIRICAL ANALYSIS EQUILIBRIUM EXPECTED UTILITY EXPECTED VALUE EXPECTED VALUES EXPENDITURES EXPORTS FARM INCOME GDP HOUSEHOLD CONSUMPTION HOUSEHOLD INCOME IDIOSYNCRATIC SHOCKS INCOME INCOME RISKS INCOME SUPPORT INDEMNITY INSURANCE INSURANCE CONTRACTS INSURANCE INDUSTRY INSURANCE SYSTEMS LEISURE LIBERALIZATION LIQUIDITY LIVING STANDARDS MACROECONOMIC GROWTH OPPORTUNITY COST OPTIMIZATION PER CAPITA INCOME POLICY RESEARCH POOR POVERTY ALLEVIATION POVERTY LINE PREMIUMS PRICE FLOOR PRICE FLUCTUATIONS PRICE RISK PRICE VARIATIONS PRIVATE INSURANCE PRODUCERS PRODUCTION INPUTS PRODUCTION PATTERNS PROGRAMS PUBLIC INSURANCE REAL INCOME RECIPROCITY RISK RISK AVERSION RISK MANAGEMENT RISK MITIGATION SAFETY NETS SAVINGS SELF INSURANCE SHARECROPPING SMOOTHING CONSUMPTION TAX REVENUE TAX REVENUES TIMBER TIME SERIES UTILITY FUNCTION WEATHER PATTERNS WILLINGNESS TO PAY WTP COMMODITY PRODUCERS DEVELOPING COUNTRIES AGRICULTURAL PRODUCT MARKETING INSURANCE CASE STUDIES COCOA TRADE COMMODITY PRICES PRICE VOLATILITY INSURANCE PREMIUMS HOUSEHOLD INCOME RISK MANAGEMENT HOUSEHOLD CONSUMPTION INCOME SECURITY LIVING STANDARDS INDICATORS PRICE INDEXES PRICE MARGINS OPTION VALUE Sarris, Alexander The Demand for Commodity Insurance by Developing Country Agricultural Producers : Theory and an Application to Cocoa in Ghana |
| geographic_facet |
Africa Ghana |
| relation |
Policy Research Working Paper;No. 2887 |
| description |
The author considers the benefit to
agricultural producers of commodity price insurance that
provides in every year-but in advance of the resolution of
production and price uncertainty--a minimum price for a fixed
or variable portion of production. Under the assumption that
producers do not change their long term production and
income diversification pattern, the author suggests a
theoretical framework that leads to explicit formulas of the
benefit in providing this type of insurance. He shows that
this benefit depends not only on the actuarially fair
insurance premium, but also on household-specific factors
that depend on the attitudes to risk, the consumption
smoothing parameters, and the household-specific exposures
to income risks. The author applies the theoretical
framework for Ghana, using the Ghana Living Standards Survey
data to specify various classes of cocoa-producing
households and monthly price data for both domestic and
international prices, to formulate appropriate models for
ascertaining price risks faced by producers. The author
gives empirical estimates of the actuarially fair premium,
and shows that they are smaller than market-based put option
prices from organized exchanges. The overall benefit in
providing minimum price insurance to households, however,
turns out to be substantially higher than the actuarially
fair premiums and the market-based put option prices. This
is due to both the magnitude of the uncertainties facing the
households, as well as their risk and consumption smoothing behavior. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Sarris, Alexander |
| author_facet |
Sarris, Alexander |
| author_sort |
Sarris, Alexander |
| title |
The Demand for Commodity Insurance by Developing Country Agricultural Producers : Theory and an Application to Cocoa in Ghana |
| title_short |
The Demand for Commodity Insurance by Developing Country Agricultural Producers : Theory and an Application to Cocoa in Ghana |
| title_full |
The Demand for Commodity Insurance by Developing Country Agricultural Producers : Theory and an Application to Cocoa in Ghana |
| title_fullStr |
The Demand for Commodity Insurance by Developing Country Agricultural Producers : Theory and an Application to Cocoa in Ghana |
| title_full_unstemmed |
The Demand for Commodity Insurance by Developing Country Agricultural Producers : Theory and an Application to Cocoa in Ghana |
| title_sort |
demand for commodity insurance by developing country agricultural producers : theory and an application to cocoa in ghana |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2002/09/2017580/demand-commodity-insurance-developing-country-agricultural-producers-theory-application-cocoa-ghana http://hdl.handle.net/10986/19271 |
| _version_ |
1764439645476618240 |