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Drought Index Insurance for the Central Valley Project in California
Author(s) -
Maestro Teresa,
Barnett Barry J.,
Coble Keith H.,
Garrido Alberto,
Bielza María
Publication year - 2016
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/ppw013
Subject(s) - san joaquin , index (typography) , deductible , product (mathematics) , adverse selection , agricultural economics , business , economic shortage , crop insurance , insurance policy , agriculture , economics , actuarial science , environmental science , geography , mathematics , linguistics , philosophy , geometry , archaeology , government (linguistics) , world wide web , computer science , soil science
A multi‐year drought has taken a severe toll on the agricultural economy of California’s Central Valley. Index insurance is an instrument with the potential to protect water users from economic losses due to periodic water shortages. An index insurance product based on the Sacramento Index and adapted to the Central Valley Project water supply is proposed. To address the potential for intertemporal adverse selection, three product designs are suggested: (1) “early bird” insurance; (2) variable premium insurance; and (3) variable deductible insurance. The performance of the designs are assessed using loss functions from the Westlands Water District in the San Joaquin Valley.