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Chang Xu's dissertation.pdf (5.79 MB)

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Index-Based Insurance, Informal Risk Sharing, and Agricultural Yields Prediction

Xu, Chang
http://rave.ohiolink.edu/etdc/view?acc_num=osu1529794733186832

Abstract Details

2018, Doctor of Philosophy, Ohio State University, Agricultural, Environmental and Developmental Economics.
In this dissertation, I investigate the interaction between formal index insurance and informal risk sharing behavior, using both theoretical and empirical analyses. Index insurance anchors its indemnity payout on an objective index; consequently, it is important to accurately estimate the relationship between these indexes and the actual outcome. Therefore, I also examine a methodological advancement that provides improved crop yields prediction using vegetation indexes generated by remote sensing techniques. In Chapter 1, I examine how systemic risks affect the sustainability and the value of informal risk sharing agreements. I develop a structural stochastic dynamic game model in which two agents enter into an income risk sharing arrangement that calls for income to be transferred from the member who has the higher income to the member who has the lower income. Using functional fixed-point methods, I derive the Markov sub-game perfect equilibrium by numerically solving the group members’ interrelated Bellman equations. Simulation results confirm that informal risk sharing arrangements become increasingly difficult to sustain when systemic shocks become more frequent and severe. I observe a critical level of correlation between incomes, beyond which the informal risk sharing arrangements tend to become unsustainable. Based on these results, I introduce index insurance into my model and analyze how access to insurance indemnity improves people’s incentives to remain in the informal risk sharing arrangement when negative systemic shock occurs. I find that when index insurance is provided to both agents in every period, the sustainability of the informal risk sharing arrangement can be preserved. In contrast, when index insurance is available only to one agent for limited periods of time, the formal insurance may crowd out informal risk sharing. In Chapter 2, I empirically test the theoretical prediction presented in Chapter 1 that access to indemnity payments from index insurance will increase participation in informal risk sharing. I utilize data provided by the International Livestock Research Institute (ILRI). ILRI piloted Index-Based Livestock Insurance (IBLI) program with pastoralists in Kenya. A propensity score matching model is used to compare the tendency to give and receive informal transfers (cash and in-kind) between pastoralists who have received index insurance indemnity and those who have not. Results suggest a complementary relationship between access to index insurance indemnity and informal risk sharing participation, implying a crowding-in effect of the formal insurance on informal insurance. The results are consistent with the theoretical results presented in Chapter 1. The effectiveness of index insurance relies on the ability of the index to accurately predict the outcome of target. Thus, in Chapter 3, I study how to incorporate the Normalized Differenced Vegetation Index (NDVI) to provide better predictions for soybean yields in ten major producing states in the United States. To account for geographical heterogeneity, I use the Geographically Weighted Regression (GWR) model and the Flexible Fourier Transform (FFT) model. Regression results from GWR and FFT show that the responses of crop yields to NDVI during the growing season vary across geographical locations. The out-of-sample cross-validation forecasts indicate that accounting for geographical heterogeneity improves forecasts by reducing forecast errors.
Mario Miranda (Advisor)
Ani Katchova (Committee Co-Chair)
Abdoul Sam (Committee Member)
152 p.
Agricultural Economics; Economics
Development Economics, Informal Risk Sharing, Index Insurance, Dynamic Modeling, Remote Sensing

Recommended Citations

Citations

  • Xu, C. (2018). Index-Based Insurance, Informal Risk Sharing, and Agricultural Yields Prediction [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1529794733186832

    APA Style (7th edition)

  • Xu, Chang. Index-Based Insurance, Informal Risk Sharing, and Agricultural Yields Prediction. 2018. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1529794733186832.

    MLA Style (8th edition)

  • Xu, Chang. "Index-Based Insurance, Informal Risk Sharing, and Agricultural Yields Prediction." Doctoral dissertation, Ohio State University, 2018. http://rave.ohiolink.edu/etdc/view?acc_num=osu1529794733186832

    Chicago Manual of Style (17th edition)

osu1529794733186832
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This open access ETD is published by The Ohio State University and OhioLINK.