The paper evaluates technical solutions and two main tapes of index-based insurance: area yield insurance and weather-based index insurance regarding their efficiency in reducing climatic risks of Russian farms in the steppes zone. The analysis considers area yield insurance at two levels of aggregation - oblast and rayon (county) level. Weather-based index insurance products are drawn up by combining two weather parameters – daily precipitation and daily average air temperature. We employ yield and weather data of an experimental station in the Central Volga Russia for the period from 1979 to 2000. In addition experts’ assessments are used to specify alternative levels of production technology and respective yield distributions for the considered region. To assess utility efficiency of the defined insurance products a programming model were formulated for 22 states of nature and 3 levels of the decision-maker risk aversion. The model estimation results show that area yield insurance based on oblast and rayon yields stabilize farm income mostly efficiently. The weather-based index insurance follows immediately after. So, both index-based insurance types provide the considered farm with a higher utility than farm yield insurance with deductibles. This points at a high potential of index-based insurance as an instrument reducing climatic risk of Russian farms situated in the steppes zone.
Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO)