| In an agrarian economy,climate change-induced risks have increasingly become inevitable and multifarious to those whose livelihoods depend on it.When shocks do occur,it does not only reduce the smallholder's income but also affect their farming and risk coping behaviours.In the absence of formal insurance market,the farmers often use short-term informal risk copping arrangements,such as loan uptake,tapping into precautionary saving,and asset offtake that may partly,albeit not fully,help them recover from disasters.Recently,index-based livestock insurance is profiled as an innovative and feasible instrument for pastoral communities manage systematic risks,but its effect on the short-term informal risk copping strategies in the African context is under-researched or little(if any).In light of this research gap,the main objective of this paper is set to weigh the effect of the index-based livestock insurance on herd offtake,loan uptake,saving,and uninsured poultry keeping behaviour of the pastoral households in the Borena zone of the southern Ethiopia using a noble household-level panel data.Particularly,the estimations result about the effect of index-based livestock insurance on the herd offtake behaviour of the pastoralists using fixed effect model show that insured households are less likely to offtake their herds.Empirically,this finding appeared to have a positive and significant effect on reducing the herd offtake behaviour of the households.This suggests that insurance can help in reducing the fear and worry of the herding households regarding the possible incidence of covariate herd loss.Consequently,distressful herd offtake can be reduced,thereby the household's economy can grow sustainably.Using similar model,the estimation results about the effect of the insurance on the loan uptake behaviour also shows that the insurance appears to have a positive and significant effect on the loan uptake behaviour of the herding households.This increased likelihood of loan uptake also suggests that the insurance can reduce the cognitive cost of loan default,build-up of the household's confidence to uptake loan,and promote the creditworthiness of the insured.Besides,the study estimates the causal effects of the insurance on saving behaviour of the pastoralists using descriptive and multipleregressions.Accordingly,the results show that cash saving is significantly and positively influenced by the insurance uptake.This finding suggests that the insurance can increase the likelihood of cash saving as it can enable the insured households to offtake their herds at speculated market price.Likewise,since the insured have risk-averting behaviour and the insurance does not provide coverage against losses due to idiosyncratic risks,they may tend to save precautionary cash.Finally,the study estimates the causal effects of the insurance on poultry production among pastoralists.Exploiting randomization of anextension treatments to purchase the index-based livestock insurance;and using fixed effect model and standard Tobit model analysis,the result shows that households who purchased the insurance contract in at least one sales period are more likely to keep a greater number of poultry than those who never purchased in either sales period.This positive and statistically significant correlation result implies that the insured household may keep relatively higher size of poultry to reduce residual risks that are not covered under the insurance policy.As the insured households are protected against systematic risk ofherding,they may stock relatively higher size of poultry bearing in mind that they will have relatively lower burden of risks and the risks in poultry production are relatively easily affordable.Moreover,the insured may prefer to insulate their consumption by selling poultry and poultry products from fluctuations in income instead of using their insured livestock as a buffer stock. |
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