Pricing of Rainfall Index Insurance for Rice and Whe at in Nepal

Abstract

The adverse effect of climate change on agriculture has increased the importance of weather index insurance, particularly in developing countries. By using several econometric models, this study estimated the price and evaluated its effectiveness in rainfall index insurance for rice and wheat in Nepa l. Crop yields associated with seasonal rainfall in three crop reporting districts were app lied for actuarial estimation. The primary findings suggest that well designed weather index insurance is helpful to reduce the yield risk and stabilize farm income for rice, but results vary across crops and districts. The study results imply that rainfall in dex insurance is a promising insurance product, particularly for rice. Implementation of r ainfall index insurance could increase the investment in cereal production in Nepal. Keywords : Certainty equivalent revenues, Crop yields, Farm income, Premium rate, Risk reduct ion.