Assessing the Viability of Index Insurance As an Adaptation Tool in a Changing Climate Context: Case Study in the West African Sahel
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Assessing the Viability of Index Insurance as an Adaptation Tool in a Changing Climate Context: Case Study in the West African Sahel by Asher Siebert A dissertation submitted to the Graduate School-New Brunswick Rutgers, The State University of New Jersey In partial fulfillment of the requirements For the degree of Doctor of Philosophy Graduate Program in Geography Written under the direction of Dr. David Robinson And Approved By ________________________________ ________________________________ ________________________________ ________________________________ New Brunswick, New Jersey January, 2015 ABSTRACT OF THE DISSERTATION Assessing the Viability of Index Insurance as an Adaptation Tool in a Changing Climate Context: Case Study in the West African Sahel By ASHER SIEBERT Dissertation Director: Dr. David Robinson This dissertation contributes to the literatures on climate extremes, climate change, and financial adaptation. In a developing world context, weather based index insurance is emerging as a potential financial adaptation for poor populations that have historically been excluded from financial markets. Index insurance has potential drawbacks as well as benefits and there are a number of practical implementation challenges. However, as index insurance is sensitive to threshold crossing extreme event (TCE) frequency and as climate change renders the climate system non-stationary, there is a need to assess how the frequency of extreme events may change as the climate system evolves. In an effort to address this research question for both hydroclimatological extremes (floods and droughts) and their associated risks, this dissertation explores the potential long-term viability of drought index insurance contracts for subsistence millet farmers and flood index insurance contracts for irrigated rice farmers in the West African Sahel nations of Mali, Burkina Faso and Niger. ii Potential hypothetical contracts were chosen on the basis of correlation analysis and Gerrity skill analysis between multiple potential geophysical indices and national crop production data. Monte Carlo statistical methods are used extensively to simulate future streamflow and precipitation scenarios and are integrated with global climate model projections of precipitation. TCE frequency is found to be particularly sensitive to multi-decadal variability (MDV) and to changes in the mean (and less sensitive to changes in the variability). Moderate changes in the mean can have a more than two fold impact on the TCE frequency and multi-decadal variability typical of the region is shown to have a significant effect on the likelihood of a large number of TCEs in a specified time window. These changes to TCE frequency have important implications for both the actuarial and uncertainty related costs of index insurance over time; thereby creating challenges for long term index insurance viability. While specific results are simulation dependent, the more extreme scenarios indicate that there may be important limitations to the viability of index insurance in the future. iii Acknowledgements/Dedication I am grateful to many people who have helped in ways both large and small to enable me to bring this research effort to its current realization. I am grateful to my dissertation committee; Professors David Robinson, Neil Ward, Asa Rennermalm and Robin Leichenko for their support and encouragement throughout the process. Within my dissertation committee, I would especially like to thank my advisor, David Robinson for his support, encouragement and interest in my work (though it is rather different in geographic focus from his own) and my external committee member, Neil Ward, whose collaboration, guidance and wealth of knowledge, experience and contacts on tropical climate research and climate risk management have been so vital to this dissertation effort. Thanks also belong to the Rutgers Geography Department as a whole for being supportive and for their nomination of me to the Dissertation Teaching Award, which gave me the valuable experience of teaching an upper level undergraduate course of my own design on climate and society in the spring of 2014. I would like to thank Michael Seigel for helping to print various posters that I have presented at various conferences and I would like to thank Kelly Bernstein and Cleo Bartos (and their predecessors Michelle and Betty Ann) for the diligent administrative work that has gone into enabling the Geography department to be so successful. I would like to thank Alessandra Giannini at IRI for being kind enough to take my poster to the Africa Climate Conference in Arusha, Tanzania in October 2013. I would like to thank the graduate faculty in the Geography department at Rutgers for offering a rich and diverse graduate education for these last five and a half years. I would like to thank department chair, Professor Richard Schroeder for doing such a fine job in his role as chair over the last three and a half years. iv In addition to those mentioned on my committee, I also took geography courses with and am grateful for the insights of Professors Kevin St. Martin on geographic perspectives and Laura Schneider on land change science. In addition to my dissertation committee and all the professors with whom I studied, I would like to especially thank Professor Ken Mitchell for his mentorship, wisdom, role as my general examiner, for his agreement to be discussant at the climate risk management session I organized at AAG 2014. I am also very grateful for the support, consideration and constructive conversations I experienced when I traveled to Niger in July 2010. In terms of institutions, I am thankful to ACMAD (my hosting organization), AGRHYMET, the Niger Basin Authority and UNDP GEF. Individually, I would like to thank Mohammed Kadi, Lazreg Benaichata, and Dr. Leonard Njau at ACMAD, Ibrahim Olomoda at Niger Basin Authority, Abdou Ali at AGHRYMET, and Dr. Katiella Mai Moussa at UNDP GEF. I am also very grateful for several constructive conversations with Professor and director of the center for African Studies, Ousseina Alidou at Rutgers who was kind enough to put me in touch with her uncle during my stay in Niger. I am also grateful to AMMA for funding my hotel stay in Toulouse for the AMMA conference in 2012 and to Rutgers University for graduate funding and conference travel support. I am grateful to the Rutgers Writing Program for funding my 5th year of graduate school. I would like to thank the participants of my Climate Risk Management sessions at the AAG for their participation. This dissertation has benefited particularly from the scholarship of Aondover Tarhule. My fellow graduate students in the Rutgers Geography program across multiple cohorts deserve thanks for their companionship (and commiseration) and have made my time at Rutgers both memorable and fulfilling. In the context of my Climate and Society class, I would like to thank Abidah Setyowati, Mark Barnes, along with Ivan Ramirez v and Emmi Yonekura for their contributions to my students’ climate related education. I would like to thank my good Sri Lankan friend, Nelun Fernando for encouraging me to apply to the Rutgers Geography program in 2009 as she was finishing her degree and my fellow former IRI employee and friend who joined my cohort, Kalpana Venkatasubramaniam. In addition to the above, in no particular order, I am grateful for friendships with many fellow Rutgers geography grad students; Purba Rudra, Monalisa Chatterjee, James Jeffers, Samuel Lederman, Kathleen Woodhouse, Richard Nisa, Adelle Thomas, Irene Zager, Eric Sarmiento, John Mioduszewski, Lindsay Campbell, Irene Tung, Deborah Scott, Colleen Earp, Sean Tanner, Victoria Huber, Ali Horton, Amelia Duffy Tumasz, Kim Thomas, Samiah Moustafa, Ariel Baker, Ariel Otruba, Charlene Sharpe, Luke and Jeana Drake, Divya Karnad, Mike Brady, Monica Hernandez, Ana Maria Mechacha, Nicolas Arribas, Josh Randall, David Eisenhauer, David Ferring, Jenny Isaacs, Ben Gerlofs, Hudson McFann, Helen Olsen and others. I am also indebted to earlier phases of my academic and professional experience at Princeton, MIT, Columbia and IRI for giving me the tools and grounding in climate science, adaptation and index insurance to make this dissertation effort what it has become. Thanks go to Professors Mark Cane, Mingfang Ting, Anthony Barnston, Lisa Goddard, Shiv Someshwar, Casey Brown, Upmanu Lall, Klaus Jacob, Klaus Lackner, Patrick Kinney and Dirk Salomons at Columbia, colleagues Dan Osgood and (formerly) Eric Holthaus (and many others) at IRI, Drs. Cynthia Rosenzweig and Radley Horton (and other colleagues) at NASA-GISS, Dr. Lonnie Thompson at Ohio State University, Professors Tony Dahlen, Jason Morgan, Jorge Sarmiento, George Philander, (formerly) Alexey Federov (and others in the Geosciences department) at Princeton. Finally, I would like to thank my very supportive family for all that they have done to support my aspirations over the course of so many years. I am grateful for the loving support of my extended family – to my Aunt Lori and Uncle Bruce for their vi generosity and to my Aunt Marcie for her practical support on many travel ventures. I’ve very much enjoyed spending time with my sister Arielle, brother in law Dave and nephews Connor and Jack over the last several years on the occasions where schedules have allowed. I am very grateful for the love, wisdom, devotion and generosity of my grandparents Milton and Josephine and am saddened by the loss of my grandmother in May 2014. I am grateful for the love