Thread by @JanicBucheli

Happy to announce that our article "Temperature effects on crop yields in heat index #insurance" with @tobi_dal and @RobertFinger1 is now online and #openaccess in @_Food_Policy. A short 🧵about the article that is available here:
sciencedirect.com/science/articl…

#Heat drives crop yield volatility. Index #insurance can reduce the resulting financial losses suffered by farmers and support #adaptation to #climatechange. Yet, there remains a protection gap for heat risks in most of European #agriculture. (1/🧵)

We introduce a payout function into heat (weather) index insurance design that integrates a cutting-edge method to empirically estimate nonlinear temperature effects on crop yields. We apply and evaluate this novel function for German winter wheat and rapeseed producers. (2/🧵)

Our novel payout function is based on a restricted cubic spline specification that is used to empirically estimate hourly temperature effects on crop yields. The payout function improves yield loss estimates to hourly temperature exposure and facilitates insurance design. (3/🧵)

To this end, we use farm-specific yield, temperature and #phenology data to calibrate insurance contracts and evaluate out-of-sample risk reducing capacities. Here an example of estimated temperature effects (red) and corresponding payouts (blue) for a wheat producer. (4/🧵)

We find out-of-sample risk reductions at farm-level of approximately 20% at the median, at the fair premium and in comparison to the uninsured status. This is a lot given the availability of already existing insurance products that cover other #climate risks in Europe. (5/🧵)

Thus, heat index insurance can complement other risk management tools and insurance products, provide economically relevant out-of-sample risk reductions and improve resilience of farming systems. (6/🧵)

Moreover, our novel payout function can calibrate itself and thereby reduces transaction costs, is applicable in any system fulfilling its data requirements and may trigger additional adaptation measures by increasing farmers' planning security. (7/🧵)

Policy-makers should acknowledge heat index insurance as a viable market-based tool to reduce financial losses. They can support insurance provision by fostering high-quality and publicly available weather and phenology data and providing secure data exchange. (8/🧵)

Yes, we ❤️ #OpenScience and hope to inspire others. Please find the corresponding R codes (insurance calibration (incl. estimation of restricted cubic spline functions) and evaluation) on the publicly available @aecp_eth #github repository. (9/🧵)

github.com/AECP-ETHZ/Temp…

Finally, many thanks to all the researchers who provided feedback and improved the quality of the article. We hope you all enjoy the read🌱.
(10/🧵)