Everyday Policy Studies No. en28

Index Based Livestock Insurance (IBLI) 06

 My previous essay https://apsf.jp/en/2021/01/08/everyday-policy-studies-no-en25/ reviews Janzen and Carter (2019). In this essay, I will review Jensen, Barrett, and Mude (2017), which is the second most cited paper among the nine papers on impacts of IBLI, following Janzen and Carter (2019).
 One of the major differences between Jensen et al. (2017) and the other eight papers is that Jensen et al. (2017) study not only the impacts of IBLI but also a conditional cash transfer program called Hunger Safety Net Programme (HSNP). HSNP provides 2,150 Kenya Shillings (KSH, about 29 United States dollar, USD) to beneficiary households once two months since April 2009. Marsabit County is one of the poorest counties in Kenya and it happened to be the pilot county not only for IBLI but also for HSNP and our households data have beneficiaries for either or both programs.
 Following our notation, equation of interest is Y=a+bX+e where Y is outcome variable, X is explanatory variable, a is constant term, and e is error term. Jensen et al. (2017) study many equations which have different X and Y. Explanatory variable X is having IBLI or having HSNP. Outcome variable Y is livestock sale, livestock herd size, veterinary expenditure, herding livestock with satellite camps, income from livestock milk, loss of livestock, household total income, school absenteeism, and health (measured by mid-upper arm circumference (MUAC) of children aged from zero to five). Jensen et al. (2017)’s central question is whether IBLI and HSNP have impacts on these outcome variables of household behavior and welfare. In order to control endogeneity of having IBLI or HSNP, they use instrument variable method. Instrument variable for having IBLI is insurance premium discount coupon as reviewed in my previous essay. Instrument variable for having HSNP is household eligibility status for HSNP.
 Jensen et al. (2017) find that either IBLI or HSNP has impacts on all outcome variables except school absenteeism. Based on estimated impacts (magnitude of b), they calculate and compare impact to cost ratios for IBLI and HSNP. Both total program cost per beneficiary and impact are similar between IBLI and HSNP and thus impact to cost ratios are also similar. On the other hand, marginal cost (how much it will cost for the next additional one beneficiary) for IBLI is 10 times smaller. It is because both IBLI and HSNP needs large initial cost for developing insurance product and setting up system for insurance transaction or cash transfer. As for marginal cost, HSNP incurs cost of cash to transfer but IBLI does not. Impact to marginal cost ratio is thus larger for IBLI.
 Jensen et al. (2017) do not find synergy between IBLI and HSNP as additional impacts when households have both IBLI and HSNP. This is studied further by Jensen, Ikegami, and Mude (2017).
 In the next essay, I will review another paper on the impacts of IBLI or proceed to studies on IBLI uptake.

Janzen, Sarah and Carter, Michael R. (2019). “After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection,” American Journal of Agricultural Economics, 101(3), 651-671.
Jensen, N. D., Barrett, C. B., and Mude, A. (2017). “Cash Transfers and Index Insurance: A Comparative Impact Analysis from Northern Kenya.” Journal of Development Economics, 129, 14–28.
Jensen, N., Ikegami, M., and Mude, A. (2017). “Integrating Social Protection Strategies for Improved Impact: A Comparative Evaluation of Cash Transfers and Index Insurance in Kenya.” The Geneva Papers on Risk and Insurance – Issues and Practice, 42(4), 675–707.

(Author: Munenobu Ikegami)