IDEAS home Printed from https://ideas.repec.org/a/ags/arerjl/31315.html
   My bibliography  Save this article

Almost Ideal Area Yield Crop Insurance Contracts

Author

Listed:
  • Smith, Vincent H.
  • Chouinard, Hayley H.
  • Baquet, Alan E.

Abstract

Using yield data for a sample of 123 dryland wheat producers in Montana, the effects of three area yield contracts, including the contract currently offered by the United States Federal Crop Insurance Corporation and two individual yield contracts on individual farm yield variability, are examined. The results indicate that while the Federal Crop Insurance Corporation area yield contract provides all farmers in the sample with some protection against yield variability, a simpler, actuarially equivalent "almost ideal" area yield contract provides substantially larger reductions in yield variability. However, actuarially equivalent individual yield contracts provide levels of protection against yield variability similar to those obtained under the "almost ideal" area yield contract at much lower premiums.

Suggested Citation

  • Smith, Vincent H. & Chouinard, Hayley H. & Baquet, Alan E., 1994. "Almost Ideal Area Yield Crop Insurance Contracts," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 23(1), pages 1-9, April.
    • Handle: RePEc:ags:arerjl:31315
    DOI: 10.22004/ag.econ.31315
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/31315/files/23010075.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.31315?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bardsley, Peter & Abey, Arun & Davenport, Scott V., 1984. "The Economics Of Insuring Crops Against Drought," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 28(1), pages 1-14, April.
    2. Jeffery R. Williams & Gordon L. Carriker & G. Art Barnaby & Jayson K. Harper, 1993. "Crop Insurance and Disaster Assistance Designs for Wheat and Grain Sorghum," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 435-447.
    3. Harold G. Halcrow, 1949. "Actuarial Structures for Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 31(3), pages 418-443.
    4. John K. Horowitz & Erik Lichtenberg, 1993. "Insurance, Moral Hazard, and Chemical Use in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 926-935.
    5. Fraser, Rob W., 1992. "An Analysis Of Willingness-To-Pay For Crop Insurance," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 36(1), pages 1-13, April.
    6. Quiggin, John C., 1986. "A Note On The Viability Of Rainfall Insurance," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 30(1), pages 1-7, April.
    7. Barry K. Goodwin, 1993. "An Empirical Analysis of the Demand for Multiple Peril Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 425-434.
    8. Jerry R. Skees & Michael R. Reed, 1986. "Rate Making for Farm-Level Crop Insurance: Implications for Adverse Selection," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(3), pages 653-659.
    9. repec:bla:scandj:v:90:y:1988:i:3:p:383-413 is not listed on IDEAS
    10. Richard J. Arnott & Joseph E. Stiglitz, 1988. "The Basic Analytics of Moral Hazard," NBER Working Papers 2484, National Bureau of Economic Research, Inc.
    11. Somwaru, Agapi & Makki, Shiva S. & Coble, Keith H., 1998. "Adverse Selection In The Market For Crop Insurance," 1998 Annual meeting, August 2-5, Salt Lake City, UT 21002, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Robert G. Chambers, 1989. "Insurability and Moral Hazard in Agricultural Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(3), pages 604-616.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Phelippe-Guinvarc'h, Martial V. & Cordier, Jean E., 2006. "A private management strategy for the crop yield insurer: A theoretical approach and tests," Insurance: Mathematics and Economics, Elsevier, vol. 39(1), pages 35-46, August.
    2. Douadia Bougherara & Laurent Piet, 2018. "On the role of probability weighting on WTP for crop insurance with and without yield skewness," Working Papers hal-02790605, HAL.
    3. Bokusheva, Raushan & Breustedt, Gunnar & Heidelbach, Olaf, 2006. "Measurement and Comparison of Risk Reduction by Means of Farm Yield, Area Yield, and Weather Index Crop Insurance Schemes - The Case of Kazakhstani Wheat Farms," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25523, International Association of Agricultural Economists.
    4. Deng, Xiaohui & Barnett, Barry J. & Hoogenboom, Gerrit & Yu, Yingzhuo & Garcia, Axel Garcia y, 2008. "Alternative Crop Insurance Indexes," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(1), pages 223-237, April.
    5. Mahul, Olivier & Vermersch, Dominique, 1999. "Hedging Crop Risk With Yield Insurance Futures And Options," 1999 Annual meeting, August 8-11, Nashville, TN 21672, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Lauriane Yehouenou & Barry J Barnett & Ardian Harri & Keith H Coble, 2018. "STAX Appeal?," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 40(4), pages 563-584, December.
    7. Calum G. Turvey & Zahirul Islam, 1995. "Equity and efficiency considerations in area versus individual yield insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 12(1), pages 23-35, April.
    8. Li, Jiangcheng & Zhang, Chunmin & Liu, Jifa & Li, Zhen & Yang, Xuan, 2018. "An application of Mean Escape Time and metapopulation on forestry catastrophe insurance," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 495(C), pages 312-323.
    9. Deng, Xiaohui & Barnett, Barry J. & Hoogenboom, Gerrit & Yu, Yingzhuo & Garcia, Axel, 2006. "Evaluating the Efficiency of Crop Index Insurance Products," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35333, Southern Agricultural Economics Association.
    10. Bokusheva, Raushan & Breustedt, Gunnar, 2012. "The Effectiveness of Weather-Based Index Insurance and Area-Yield Crop Insurance: How Reliable are ex post Predictions for Yield Risk Reduction?," Quarterly Journal of International Agriculture, Humboldt-Universitaat zu Berlin, vol. 51(2), pages 1-22, May.
    11. Geoffroy Enjolras & Robert Kast & Patrick Sentis, 2009. "Diversification in Area-Yield Crop Insurance : The Multi Linear Additive Model," Working Papers 09-15, LAMETA, Universtiy of Montpellier, revised Nov 2009.
    12. Robert Kast, 2011. "Managing financial risks due to natural catastrophes," Working Papers hal-00610241, HAL.
    13. Bougherara, Douadia & Piet, Laurent, 2014. "The Impact of Farmers’ Risk Preferences on the Design of an Individual Yield Crop Insurance," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 183082, European Association of Agricultural Economists.
    14. Edith Kouakou & Marielle Brunette & Richard Koenig & Philippe Delacote, 2023. "Crop Yield Risks and Nitrogen Fertilisation in French Agriculture: Implications for Crop Insurance," Working Papers of BETA 2023-38, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    15. Jensen, Nathaniel D. & Barrett, Christopher B. & Mude, Andrew G., 2014. "Basis Risk and the Welfare Gains from Index Insurance: Evidence from Northern Kenya," MPRA Paper 59153, University Library of Munich, Germany.
    16. Bokusheva, Raushan & Breustedt, Gunnar & Heidelbach, Olaf, 2007. "Ex-ante evaluation of weather-based index insurance and area-yield insurance for reducing crop yield risk," 101st Seminar, July 5-6, 2007, Berlin Germany 9250, European Association of Agricultural Economists.
    17. Weaver, Robert D. & Kim, Taeho, 2002. "Designing Crop Insurance to Manage Moral Hazard Costs," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24784, European Association of Agricultural Economists.
    18. Yehouenou, Lauriane S. M. & Barnett, Barry J. & Harri, Ardian & Coble, Keith H., 2016. "An Analysis of Factors Affecting Bias and Inefficiency in Area Yield Indexes Based on Aggregated Farm Yields," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 230081, Southern Agricultural Economics Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Just, Richard E. & Calvin, Linda, 1994. "Adverse Selection in U.S. Crop Insurance: The Relationship of Farm Characteristics to Expected Indemnities," Working Papers 197808, University of Maryland, Department of Agricultural and Resource Economics.
    2. Heidelbach, Olaf, 2007. "Efficiency of selected risk management instruments: An empirical analysis of risk reduction in Kazakhstani crop production," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 40, number 92323.
    3. Coleman, Jane A. & Shaik, Saleem, 2009. "Time-Varying Estimation of Crop Insurance Program in Altering North Dakota Farm Economic Structure," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49516, Agricultural and Applied Economics Association.
    4. Olivier Mahul, 1998. "Vers une redéfinition du rôle de l’assurance agricole dans la gestion des risques sur récoltes," Post-Print hal-01200910, HAL.
    5. Olivier Mahul, 1998. "Vers une redéfinition du rôle de l’assurance agricole dans la gestion des risques sur récoltes," Cahiers d'Economie et Sociologie Rurales, INRA Department of Economics, vol. 49, pages 33-58.
    6. Gustafson, Cole R. & Crane, Laurence M. & Fischer, William R., 1995. "Agronomic, Economic, and Demographic Characteristics of Crop Farms in the Great Plains and Corn Belt," Agricultural Economics Reports 23221, North Dakota State University, Department of Agribusiness and Applied Economics.
    7. Shaik, Saleem & Atwood, Joseph A., 2002. "Optional Unit Policy In Crop Insurance," 2002 Annual meeting, July 28-31, Long Beach, CA 19741, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Mahul, Olivier, 1998. "Vers une redéfinition du rôle de l’assurance agricole dans la gestion des risques sur récoltes," Cahiers d'Economie et de Sociologie Rurales (CESR), Institut National de la Recherche Agronomique (INRA), vol. 49.
    9. Shaik, Saleem & Atwood, Joseph A., 2000. "Estimating The Demand Of Crop Insurance And Supply Of Indemnity Payments: Nebraska Agriculture Sector," 2000 Annual meeting, July 30-August 2, Tampa, FL 21795, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Shaik, Saleem & Atwood, Joseph A., 2002. "An Examination Of Different Types Of Adverse Selection In Federal Crop Insurance," 2002 Annual Meeting, July 28-31, 2002, Long Beach, California 36649, Western Agricultural Economics Association.
    11. Quiggin, John C. & Karagiannis, Giannis & Stanton, J., 1993. "Crop Insurance And Crop Production: An Empirical Study Of Moral Hazard And Adverse Selection," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 37(2), pages 1-19, August.
    12. Richard E. Just & Linda Calvin & John Quiggin, 1999. "Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 834-849.
    13. Mason, Charles Edwin, IV, 2000. "Estimation and attenuation of reinsurance risk in the crop insurance market," ISU General Staff Papers 2000010108000013703, Iowa State University, Department of Economics.
    14. Quiggin, John C. & Chambers, Robert G., 2004. "Drought policy: a graphical analysis," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), pages 1-27.
    15. Makki Shiva S. & Somwaru Agapi L., 2007. "Assessing Adverse Selection in Crop Insurance Markets: An Application of Parametric and Nonparametric Methods," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 2(1), pages 1-22, May.
    16. Bokusheva, Raushan, 2004. "Crop insurance in transition: a qualitative and quantitative assessment of insurance products," IAMO Discussion Papers 76, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    17. Ming Wang & Tao Ye & Peijun Shi, 2016. "Factors Affecting Farmers’ Crop Insurance Participation in China," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 64(3), pages 479-492, September.
    18. Gong, Xuche & Feng, Hongli & Hennessy, David A., 2018. "Systemic Risk, Geography and Area Insurance," 2018 Annual Meeting, August 5-7, Washington, D.C. 274479, Agricultural and Applied Economics Association.
    19. Tang, Lin & Luo, Xiaofeng, 2021. "Can agricultural insurance encourage farmers to apply biological pesticides? Evidence from rural China," Food Policy, Elsevier, vol. 105(C).
    20. Glauber, Joseph W. & Harwood, Joy L. & Skees, Jerry R., 1993. "An Alternative for Reducing Federal Crop Insurance Program Losses," Agricultural Economic Reports 308267, United States Department of Agriculture, Economic Research Service.

    More about this item

    Keywords

    Risk and Uncertainty;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:arerjl:31315. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/nareaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.