Improving humanitarian response to slow‐onset disasters using famine‐indexed weather derivatives

Improving humanitarian response to slow‐onset disasters using famine‐indexed weather derivatives This paper illustrates how weather derivatives indexed to forecasts of famine can be designed and used by operational agencies and donors to facilitate timely and reliable financing, for effective emergency response to climate‐based, slow‐onset disasters such as drought. We provide a general framework for derivative contracts, especially in the context of index insurance and famine catastrophe bond, and show how they can be used to complement existing tools and facilities in drought risk financing through a risk‐layering strategy. We use the case of arid lands of northern Kenya, where rainfall proves a strong predictor of widespread and severe child wasting, to provide a simple empirical illustration of the potential contract designs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Agricultural Finance Review Emerald Publishing

Improving humanitarian response to slow‐onset disasters using famine‐indexed weather derivatives

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0002-1466
DOI
10.1108/00214660880001225
Publisher site
See Article on Publisher Site

Abstract

This paper illustrates how weather derivatives indexed to forecasts of famine can be designed and used by operational agencies and donors to facilitate timely and reliable financing, for effective emergency response to climate‐based, slow‐onset disasters such as drought. We provide a general framework for derivative contracts, especially in the context of index insurance and famine catastrophe bond, and show how they can be used to complement existing tools and facilities in drought risk financing through a risk‐layering strategy. We use the case of arid lands of northern Kenya, where rainfall proves a strong predictor of widespread and severe child wasting, to provide a simple empirical illustration of the potential contract designs.

Journal

Agricultural Finance ReviewEmerald Publishing

Published: May 5, 2008

Keywords: Catastrophe bond; Covariate risk; Famine relief; Food aid; Food insecurity; Kenya; Pastoralists; Weather derivatives

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