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Producer Welfare Benefits of Rating Area Yield Crop Insurance

Author

Listed:
  • Azadeh Falsafian

    (Department of Agricultural Management, Tabriz Branch, Islamic Azad University, Tabriz 51579-44533, Iran)

  • Mohammad Ghahremanzadeh

    (Department of Agricultural Economics, Faculty of Agriculture, University of Tabriz, Tabriz 51666-16471, Iran)

  • Taravat Aref Eshghi

    (Department of Agricultural Economics, Faculty of Agricultural Sciences, University of Guilan, Rasht 41996-13776, Iran)

  • Vali Rasooli Sharabiani

    (Department of Biosystems Engineering, University of Mohaghegh Ardabili, Ardabil 56199-11367, Iran)

  • Mariusz Szymanek

    (Department of Agricultural, Forest and Transport Machinery, University of Life Sciences in Lublin, Głęboka 28, 20-612 Lublin, Poland)

  • Agata Dziwulska-Hunek

    (Department of Biophysics, University of Life Sciences in Lublin, Głęboka 28, 20-612 Lublin, Poland)

Abstract

Index-based insurance is an innovative concept for evaluating agricultural risks and payouts, which uses an index instead of traditional on-site loss assessment. Area yield insurance, as an index-based approach, is an effective strategy to mitigate moral hazard and adverse selection issues. This study aims to develop area yield insurance as a new insurance plan in Iran for two major crops: wheat and barley. It utilized kernel and joint kernel distributions to price the insurance and assessed producer welfare benefits by comparing the certainty equivalence (CE) of farmers’ utility with and without the policy. Data were collected from East Azerbaijan Province, including county-level yield data for irrigated and rainfed wheat and barley from 1975 to 2019 and 446 individual-level yield data from 2015 to 2019. A two-stage method was used to model yield risk: the first stage fits a trend model, while the second estimates the yield distributions with the detrended data. The results showed a significant difference in premiums calculated by the two distributions, with joint kernel distribution offering the best empirical fit and reasonable premiums. The findings indicate that area yield crop insurance provides positive welfare benefits and should serve as a viable alternative or complement to existing yield insurance plans. The successful implementation of this policy in various countries suggests it can be a suitable risk management program for developing countries like Iran.

Suggested Citation

  • Azadeh Falsafian & Mohammad Ghahremanzadeh & Taravat Aref Eshghi & Vali Rasooli Sharabiani & Mariusz Szymanek & Agata Dziwulska-Hunek, 2024. "Producer Welfare Benefits of Rating Area Yield Crop Insurance," Agriculture, MDPI, vol. 14(9), pages 1-21, September.
  • Handle: RePEc:gam:jagris:v:14:y:2024:i:9:p:1512-:d:1470320
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    References listed on IDEAS

    as
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