An Aggregate analysis of the impact factor of the index based livestock insurance pastoralists in Kenya

Abstract

The purpose of this study was to quantify the effects of Index Based Livestock Insurance in Kenya on income generation and welfare enhancement of pastoral households. Index-Based insurance attracts attention as a potentially effective tool for reducing vulnerability of agricultural household’s in developing countries. However, previous literature has assumed away how household intertemporal behavior and welfare would change by reduced production risk and shock due to index-based insurance. The paper employed the endogenous treatment regression model in order to quantify the effects of Index Based Livestock Insurance on an aggregate level. The study finds that insurance provision induces pastoralists to shift production towards higher return but higher risk breeds of livestock. The results support the view that financial innovation can mitigate the real effects of uninsured production risk.