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Abstract
The paper evaluates the effectiveness of
several index-based crop insurance schemes by
comparing results from two alternative evaluation
approaches. We apply the common ex post approach
from the literature by specifying and evaluating
insurance contracts by means of the data for the same
historical period. We introduce an ex ante evaluation
approach by distinguishing between two consecutive
periods in the available time series: the first period is
used for determining insurance parameters and optimal
number of farmer’s insurance contracts; and the
subsequent one is considered for the evaluation of the
risk reduction due to the insurance contract defined as
in the first period. Our empirical results based on the
data for 40 grain producers in Kazakhstan indicate that
the common ex post approach overestimates the risk
reduction substantially for most index insurance
schemes. Additionally, the ex post approach seems to
cause the overestimation of index-based insurance
effectiveness primarily due to differences in the
estimates of the optimal insurance contracts’ number
rather than due to differences in the insurance contract
parameters’ estimates.