Index Insurance and Pastures

We explore potential effects of index based insurance on common property resources, assessing its impacts on the animal stocking decisions of pastoralists and the resulting impact on a common property pasture. We find a range of potential outcomes. Although index insurance has the capability of enhancing the welfare of pastoralists by augmenting expected payoffs without degrading the common property resource, under some conditions the insurance can increase overstocking problems in low rainfall states of nature. If identified, these potential unintended negative effects of the insurance on common property might be mitigated by additional technological and/or market interventions