Abstract:
Weather index based insurance has been one of the recommended risk transfer mechanisms
to support smallholders in coping with production risks. The objectives of this study were to
identify the factors affecting farm households’ WTP for crop insurance and estimate the mean
amount of farmers’ willingness to pay for the proposed insurance scheme in the study area.
To do this, a multi stage simple random sampling techniques was used to select 153 sample
households from three sample kebeles in the district, which were selected out of 29
agro-pastoral kebekes; and semi structured questionnaire with face to face interviews was
used to collect the data. Descriptive statistics, Double Bounded Contingent Valuation Method
and Bivarate Probit Model were used for the analysis of the survey data. Sample farm
households were categorized based on their joint responses to the offered bids (Bid one and
follow bid).The response of households in the double bounded contingent valuation method
reveals that the first response is shared by 79.08% of Yes and 20.92 % of No responses;
whereas the sample households’ response to the second bid is shared by 69.93% of Yes and
30.06% of No responses. The bivariat probit model estimate result revealed that among
fourteen explanatory variables included in the model, six variables TLU, bid one, annual
income , access to media, age of household head and Household size have significant effect
on WTP at bid one level and seven variables age, TLU, annual income, household size,
extension visit, availability of private and public aid, and follow bid have significant effect
on farmers’ WTP at follow bid level in study area . The mean WTP for bid one is
191.68ETB per hector, where as the mean WTP by farm households for follow bid is
2942.5ETB per hector. Finally the study recommends that policy makers need to aware and
act on different socioeconomic and institutional characteristics of households’ that influence
their WTP for crop insurance. Besides, the study result showed there is a big difference in the
mean WTP at bid one and follow bid levels and needs the government and stockholders to
finance and support the scheme.
