Weather index-based insurance in a cash crop regulated sector: Ex ante evaluation for cotton producers in Cameroon
Research Paper #21 assesses the risk mitigation capacity of weather index-based insurance for cotton growers in Northern Cameroon. It finds that weather index-based insurance is associated with huge basis risk and thus has limited potential for income smoothing. The authors use a tractable definition of basis risk to show that calibrating parameters in sub-regions allows to reduce dramatically basis risk and to avoid non negligible balancing out between distinct geographical zones.