Weaknesses in Institutional Organization: Explaining the Dismal Performance of Kenya's Coffee Cooperatives

In this paper, we use the experience of Kenya's failing Coffee Cooperatives to show that, under certain circumstances, membership based organizations can give rise to perverse incentives that undermine the benefits of organizing and lead to a reduction in member productivity and welfare. We identify certain features of the institutional environment underlying Kenya's coffee cooperatives that facilitate rent-seeking behavior. The lack of a formal regulatory structure with credible enforcement mechanisms, the presence of informal electoral practices conducive to vote-buying, and the legal support for local monopsonies that facilitates exploitive pricing all contribute to the dismal performance of Kenya's coffee cooperatives. Using a data set of more than 200 coffee farmers representing nine cooperatives, we find a statistically significant relationship between cooperatives empirically determined to be corrupt and high levels of technical inefficiency in coffee production among their members.Agricultural Cooperatives, Decentralization, Rent-Seeking, Technical Inefficiency, Agribusiness, Institutional and Behavioral Economics, D7, Q13, Q18, Z13,

The role of mobile technologies in promoting sustainable delivery of livestock insurance in the East African Drylands: Toward sustainable Index-Based Livestock Insurance (IBLI) for pastoralists

United States Agency for International DevelopmentDepartment for International Development, United KingdomInternal Revie

Explaining index based livestock insurance to pastoralists

Livestock production in arid and semi-arid rangelands is a risky enterprise. Covariate risk of catastrophic livestock loss due to drought is the most critical uninsured risk facing livestock producers. These losses can lead to persistent poverty. We are trying to design an index based livestock insurance (IBLI) program as a viable means to help pastoralists in northern Kenya manage such covariate risk of livestock losses due to drought. A predicted livestock mortality index – established from a statistical relationship between satellite-generated vegetation imagery and historical records of community level livestock losses – represents an objectively, cost effectively measured and non-human manipulable index that triggers insurance payout. The insurance is offered by private insurance companies. The advantages of reduced transaction costs and asymmetric information problems, however, come at the cost of increased basis risk, which refers to the imperfect correlation between an insured‟s loss experience and the index. We have developed a game that explains to pastoralists how such an insurance product could work. We built in the game both covariate and idiosyncratic shocks, and use a subsistence constraint to generate bifurcating asset dynamics, observed empirically in the targeted communities. This paper describes how the game was designed, how it was used in the field, and presents findings on how individuals played the game. The paper concludes by discussing how these findings are being used in the design and broader extension of the index based insurance product

Developing Index Based Livestock Insurance for managing livestock asset risks in Northern Kenya

This study develops an index-based livestock insurance (IBLI) product for managing key livestock asset risks of pastoralists in the arid and semi-arid lands of northern Kenya, where insurance markets are effectively absent and uninsured risk exposure is a main cause of persistent poverty. It uses a combination of field experiments and surveys conducted in summer 2008, and pre-existing household-level panel data sets in: (1) designing a market-viable contract; (2) conducting ex-ante householdlevel welfare analysis; and (3) eliciting willingness to pay (WTP) for the product among the targeted population. IBLI offers compensation based on a predicted location aggregate livestock mortality index constructed from a strong statistical relationship between household herd mortality rates and high quality, objectively verifiable, remotely-sensed measures of vegetative cover on rangelands that are not manipulable by insured parties. It thus has potential to resolve the transaction costs and asymmetric information problems that cripple traditional insurance. The presence of a threshold-based poverty trap in East African pastoralism leads to nonlinear IBLI valuation, as found both in the simulation-based welfare analysis and in WTP estimates elicited through field surveys and experiments. This implies that IBLI could be both a commercially viable insurance product for better-off pastoralists, as well as a pro-poor instrument to use as a safety net for pastoralists vulnerable to losing their herds and collapsing into chronic poverty. The IBLI contract originally designed in this study has been slightly modified and launched in a pilot in January 2010 in the Marsabit district of northern Kenya by a Kenyan commercial insurer with retail distribution/brokerage by a leading private financial institution, international reinsurance by Swiss Reinsurance, with the International Livestock Research Institute (ILRI) leading the effort and the associated monitoring and evaluation program