@article{Carter:190918,
      recid = {190918},
      author = {Carter, Michael R. and Galarza, Francisco B. and Boucher,  Steve},
      title = {Underwriting Area-based Yield Insurance to Crowd- in  Credit Supply Demand},
      address = {2007-11},
      number = {1570-2016-133540},
      series = {Working Paper},
      pages = {38},
      year = {2007},
      abstract = {Recent theoretical and empirical evidence suggests that  risk (especially covariant risk
that is correlated across  producers) may discourage both the supply of  agricultural
credit and the willingness of small holders to  utilize available credit and enjoy the
higher expected  incomes credit could make available to them. One possible  resolution
to this problem is to remove risk from the  system by independently insuring it.
However, conventional  (all hazard) crop insurance has in almost every instance  been
rendered financially unsustainable by moral hazard and  adverse selection problems.
This paper instead analyzes two  index-based insurance schemes, one based on a
weather  index, and a second based on measured average yields. While  these index
insurance products do not protect the farmer  from all risks, our econometric analysis
(which is based on  data from the north coast of Peru) shows that they could  have
substantial value to the producer and could also  crowd-in credit supply from lenders
reluctant to carry too  much covariant risk in their loan portfolios. We also show  that
insurance based on measured yields is markedly  superior to a weather index (for both
borrowers and  lenders). We close by arguing that present and past public  good failures
justify public intervention in this area, and  analyze the feasibility of a public scheme to
initially  underwrite the costs and uncertainties associated with  area-based yield insurance.},
      url = {http://ageconsearch.umn.edu/record/190918},
      doi = {https://doi.org/10.22004/ag.econ.190918},
}