Abstract
In this paper the willingness to pay for weather index insurance in rural parts of Ethiopia is analyzed. This study used the 2009 Ethiopian rural household survey data of the International Food Research Policy Institute. The Results show that those households who are less risk-averse have more willingness to pay than the risk-averse households. But the result is not consistent across all risk categories. The results also show that a unit increase in the amount of money that they would have to be given to wait for a month instead of receiving a gift of 100 Birr now increases willingness to pay to weather index insurance by small amount that s by 0.0002 times. This means impatient households who are unable to insure themselves have more willingness to pay for insurance. A unit increase in livestock value owned by the household also increases willingness to pay for weather index insurance by 0.00017 times. A unit increase in years of schooling increase willingness to pay by 0.24 times. Those households who are educated through informal education system (stated as other education) such us adult literacy program, church/mosque schools and other literacy program have also 0.62 unites more willingness to pay than those who did not complete any education. Those households who are familiar to local financial access (those who are members of Eqqub) have 2.16 more willingness to pay for insurance than those who are not members. Moreover, those households who are involved in any of the water harvesting technologies have 3.21 more unites of willingness to pay for insurance than those who are not involved in any water harvesting technology. Besides, the results show that women, old age households and households with large land size have less willingness to pay for insurance. The increase in off-farm income of households also increases willingness to pay for insurance. The results indicate that the effect of households risk perception, time preference, education, familiarity with local financial products, involving in water harvesting technologies and livestock value on willingness to pay for weather index insurance are significant. However, the effects of age, sex, land size, and off-farm income on willingness to pay for weather index insurance are found statistically insignificant.