A role for capital markets in natural disasters: a piece of the food security puzzle

Natural disaster can create significant shocks in food supplies for small country-states. These events are very disruptive to the development process. Market-based means for managing natural disaster risk are emerging. For example, despite the failure of government-subsidized crop insurance around the world, it is now possible to create index-based contracts that would trigger when events that create serious crop failure problems occur. This paper investigates the logic for such contracts and some basic designs using measures of rainfall. c 2000 Elsevier Science Ltd. All rights reserved.