Efficiency of Rainfall Index Insurance for Barley in Hashtrud County

One of the best risk management ways is agricultural insurance, but traditional agricultural insurance schemes have problems such as high execution costs and the asymmetric information challenge. Weather index insurance is a different approach for agricultural insurance. One of the most common risks of rain fed production is the risk of rainfall fluctuation. Hashtrud County has the first rank of barley performance in the province. In this research, using the lost cost function, the pricing of rainfall index insurance for barley in Hashtrud County was investigated and then using two methods of mean root square loss (MRSL) and certainty equivalent revenues (CER) The effectiveness of this type of insurance in risk management is evaluated. In this regard, data of barley yield and rainfall data collected during the years 1370-94 are used.The results of the indemnity function showed that in the years 1374-75, 1376-77, 1377-78, 1378-79, 1379-80, 1384-85, 1386-87 and 1391-92 indemnity has been paid. This is because in the years mentioned the annual rainfall was less than 300 mm. Then, using the lost- cost function and the two theoretical distribution of log-logistic and Dagum, the premium rates were calculated to be 18 percent. Finally, its effectiveness was evaluated in risk management due to rainfall variation. The results of both approaches showed that the suggested contract have been profitable for Barley, therefore, it is suggested as an appropriate strategy for risk management in Hashtrud County.