An article in The Economist XXXXXXXXXXreported on what seems an unusual approach to tackling starvation in developing countries such as Ethiopia. The UN agency, the World Food Program (WFP), has...

An article in The Economist (2004) reported on what seems an unusual approach to tackling starvation in developing countries such as Ethiopia. The UN agency, the World Food Program (WFP), has proposed using financial instruments as a way to deal with extreme hunger. One idea is for WFP to buy an insurance policy that pays out when rainfall in a country is below a certain level, thereby providing the funds to pay for food aid. An alternative is ‘catastrophe bonds’, which in years of good rainfall in a country would require the WFP to pay interest to the bond owners, but in in bad times of low rainfall, the principal from the bond would be used to buy food. a What problems do you think are caused by variable rainfall for the population of a country such as Ethiopia? b What are the proposals that are suggested to alleviate these problems? c What is the source of the addition to wellbeing that could come from implementation of the proposals? Why might market-based solutions be better than simply providing aid when bad outcomes occur in poor countries? d Can you think of other market-based solutions that might assist in alleviating the problems caused by variable rainfall?