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Drought Tolerant Maize Varieties (DTMV) and Rainfall Index Insurance (RII) are potential complements, though with limited empirical basis. We employ a multivariate spatial framework to investigate the potential for bundling DTMV with a simulated multi‐site and multi‐environment RII, designed to insure against mild, moderate and severe drought risk. We use yield data from on‐farm trials conducted by the International Maize and Wheat Improvement Center (CIMMYT) and partners over 49 locations in Eastern and Southern Africa spanning 8 countries and 5 mega‐environments (dry lowland, dry mid altitude, wet lower mid altitude, low wetland and wet upper mid altitude) in which 19 different improved maize varieties including DTMV were tested at each location. Spatially correlated daily rainfall data are generated from a first‐order two‐state Markov chain process and used to calibrate the index and predict yields with a hierarchical Bayes multivariate spatial model. Results show high variation in the performance and benefits of different bundles which depend on the maize variety, the risk layer insured, and the type of environment, with high chances of selecting a sub‐optimal and unattractive contract. We find that complementing RII with a specific DTMV produces contracts with lower premiums and higher guaranteed returns especially in dry lowland increasing the chances of scaling up RII within this environment. [ABSTRACT FROM AUTHOR]

We investigate how self-protection from the adoption of Improved Maize Varieties (IMV) and off-farm income affects risk premiums for smallholder maize producers in Uganda. To unbundle these effects, we specify the cost of risk to explicitly capture four risk components-mean, variance, skewness, and kurtosis. Using unique plot-level panel data for Uganda, we estimate and test moments of a flexible production function based on an expanded form of the Johnson S U family distribution and proceed to simulate the degree of responsiveness of risk premiums and welfare estimates to marginal changes in the share of land under IMV and off-farm income. Scenarios of joint adoption of IMV accompanied with low and high application of inorganic fertilizer, and the effect of off-farm income when there is high and low supply of farm labor are examined. Results show that the use of IMV and off-farm income substantially reduces risk premiums and the individual effect is much higher under low fertilizer application and high supply of farm labor, respectively. Thus implying that self-protection is likely to reduce the propensity for index insurance especially if its design fails to consider the reduction in downside risk. [ABSTRACT FROM AUTHOR]