Factors that affect adoption of Weather index insurance and its intensity: The case of Kola Tembien wereda, Tigray Northern Ethiopia

Abstract

Weather index micro insurance mechanisms are highly recognized as preferable ways to finance the drought risk. The objective of this paper is to analyze factors that affect adoption of weather index insurance and to examine the amount of insurance in Kola Tembien-wereda of Tigray Region. The study uses Heckman two- stage model to examine this issue. First, we determine the factors which affect the weather index insurance adoption decisions and at the second stage we focus on the amount of insurance purchase using Heckman-Two-Stage estimation procedure. The data for this study is based on the survey data by HARITA project from Kola-Tembien wereda of central Tigray. Heckman suggests a two stage estimation method to correct the bias as a result of self-selection in the decision and outcome models. In the first stage of the model, the decision equation is the household’s decision to adopt or not to adopt WII which will be estimated based on the probit model. In the second stage, only the households having adopted WII have been used. The result indicate that marital status of the household head affects negatively, PSNP participation, number of oxen owned, Perception about drought incidence were found to be affecting the WII adoption positively and significant. Regarding the amount of insurance purchase education, rain fed land owned, Type of Hutsa soil were found both positive and significant.