Index insurance and basis risk: A reconsideration
研究了指数保险中基差风险对农民购买意愿的影响，发现风险厌恶的农民会选择较高触发水平以防范灾难性损失，即使这会增加下行基差风险。
Index insurance has been seen as an important tool for managing the risks faced by farmers in developing countries but uptake has been disappointingly low. Basis risk is often cited as one of the main reasons for the lack of uptake. We investigate the role of basis risk in greater depth by considering contracts that allow farmers to choose the level of the index that triggers an indemnity in addition to coverage. We show that risk averse farmers will select trigger levels to protect against catastrophic outcomes, even if downside basis risk increases. A numerical simulation model bears out our theoretical results.