EX ANTE EVALUATION OF INDEX-BASED CROP INSURANCE EFFECTIVENESS

The paper evaluates the effectiveness ofseveral index-based crop insurance schemes bycomparing results from two alternative evaluationapproaches. We apply the common ex post approachfrom the literature by specifying and evaluatinginsurance contracts by means of the data for the samehistorical period. We introduce an ex ante evaluationapproach by distinguishing between two consecutiveperiods in the available time series: the first period isused for determining insurance parameters and optimalnumber of farmer’s insurance contracts; and thesubsequent one is considered for the evaluation of therisk reduction due to the insurance contract defined asin the first period. Our empirical results based on thedata for 40 grain producers in Kazakhstan indicate thatthe common ex post approach overestimates the riskreduction substantially for most index insuranceschemes. Additionally, the ex post approach seems tocause the overestimation of index-based insuranceeffectiveness primarily due to differences in theestimates of the optimal insurance contracts’ numberrather than due to differences in the insurance contractparameters’ estimates.