Demand for Complementary Financial and Technological Tools for Managing Drought Risk
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Financial and technological innovations that mitigate weather-related
production risks have the potential to greatly benefit farmers in many risk-prone areas.
In this study we examine farmers’ preferences for two distinct tools that allow them to
manage drought risk: weather index insurance and a recently released drought-tolerant
rice variety. We illustrate how these tools can independently address drought risk and
demonstrate the additional benefits gained by combining them into a complementary risk
management product. Findings indicate that farmers are generally unwilling to adopt the
drought-tolerant variety independent of insurance, largely due to a yield penalty under
non-drought conditions. When bundled with insurance, however, farmers’ valuation of
the variety increases. Farmers value insurance on its own, but even more so when
bundled with the drought-tolerant variety. The results provide evidence that farmers
value the complementarities inherent in a well-calibrated bundle of risk management
tools.