The authors propose a financial model to address the design of efficient risk financing strategies against natural disasters at the country level. It is simple enough to shed analytical light on some of the key issues but flexible and realistic enough to provide some quantitative guidance on the...

Cost-benefit analysis is a standard tool for determining the efficiency of planned projects. But one of the major difficulties in risk mitigation investments is that benefits are by nature uncertain. In this context, the standard approach relying on the average value of benefits may provide an...

Gurenko and Mahul provide a conceptual framework for designing a comprehensive risk financing strategy for a firm using an optimal combination of three instruments: self-retention, contingent debt, and insurance. Using an original conceptual model, the risk management decisions of the firm are...

This paper examines how market-based risk financing instruments could enable asset-poor but productive farmers exposed to production shocks to engage in riskier but higher-return agricultural activities. The financing of these exogenous shocks is addressed in a conceptual framework based on an...

The authors identify the key issues and concerns that arise in the design and rating of crop yield insurance plans, with a particular emphasis on production risk modeling. The authors show how the availability of data shapes the insurance scheme and the ratemaking procedures. Relying on the U.S....

The March 2011 earthquake that hit east Japan was the fourth-largest ever recorded. It was not only a human tragedy but an economic shock with losses estimated in excess of 16,900 billion Chinese yuan, making it the costliest disaster in history. Despite this, the Japanese insurance industry is...

Governments in developing countries have been increasingly involved in the support of commercial agricultural (crop and livestock) insurance programs in recent years. A striking example is China, where, with support (and premium subsidies) from the central and provincial governments, the...

Public intervention in catastrophe insurance markets, supported by the donor community and the World Bank, should be country specific. Low-income countries, where the domestic non-life insurance market is undeveloped, should focus in the short term on the development of sovereign catastrophe...

This study investigates optimal production and hedging decisions for firms facing price risk that can be hedged with vulnerable contracts, i.e., exposed to nonhedgeable endogenous counterparty credit risk. When vulnerable forward contracts are the only hedging instruments available, the firm's...