Weather Risk and the World Food Program
Abstract: Weather risk management is a set of financial products including
insurance, catastrophe bonds, and derivative contracts based on seasonal precipitation and
temperature. International organizations have recently put their toes in the water to see
whether insurance and weather derivatives can help them secure conditional access to
necessary funds for predictable emergencies. Ethiopia i... read mores the epicenter of financial
innovation for food security, first in the form of a pilot weather insurance program at
World Food Program, and subsequently with a risk financing program in the Productive
Safety Nets Program. Why did these organizations innovate in this way? Financial theory
predicts that firms optimize a portfolio of hedged and unhedged cash flows to protect the
organization from risk. Rational choice predicts that firms seek the greatest possible
access to funds while preserving the greatest latitude for operational independence. I
show that the safety net program seeks to improve foresight and transparency over its
program objectives, rather than credibility with international creditors or even
operational partners in the field. I analyze the decisions made by WFP and PSNP related to
financial risk management, using process tracing and grounded theory. Applications of the
research include contract design for international humanitarian assistance, and
potentially a market opportunity for financial services in the international public
Thesis (Ph.D.)--Tufts University, 2011.
Submitted to the Dept. of Diplomacy, History, and Politics.
Advisor: Daniel Drezner.
Committee: Jenny Aker, and Patrick Webb.
Keyword: International Relations.read less