Households’ Willingness to Pay for Livestock Insurance in Karrayyu Pastoralist Community: An Attempt for Risk Reduction.

Abstract

The study aim to investigate pastoralist community’s willingness to pay (WTP) and factors that determine their willingness to pay for index based livestock insurance scheme. Using survey data collected by systematic sampling method, the study adopted an interval data logit model and estimated households’ WTP for index based livestock insurance for camels, cattle and goats & sheep’s separately. The study finding reveals that there is huge demand for livestock insurance scheme following recurrent drought and increased chance of losing their livestock. The estimated result shows that total WTP for camel, cattle and goat and sheep is about 2.7, 4.27, and 4.4 million birr per year respectively. Age of household head, family size, number of camel size and value of household asset have significant positive effect; where as  non-farm income and distance from local market have negative effect on households’ probability of joining Camel insurance. The cattle model shows that value of household assets have negative effect and size of the cattle has positive effect on the probability of households’ willingness to join cattle insurance and their WTP. The goat and sheep model shows that number of goat and sheep has positive effect; income from livestock and age of household head has negative effect on households’ probability of joining livestock insurance and WTP.  In all models, the starting bid price has negative significant effect on the demand for livestock insurance, confirming the law of demand. Policy suggestion is that public or private insurance company can intervene through supply of livestock insurance for commercial purposes as well as to mitigate the side effect of covariate shocks leading to smooth consumption and stable income stream of households. Preferential policy intervention for camel insurance may yield better outcome as the community gives more value to the camel.