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Constrained Efficient Contracts for Area Yield Crop Insurance

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  • James A. Vercammen

Abstract

With area yield crop insurance, indemnification occurs when area yield falls below a yield trigger that is chosen by the producer. The maximum value for this yield trigger is generally restricted (e.g., 80% of the long term area average yield). The impact of this trigger constraint on the optimal design of an area yield insurance contract is examined. Within the constrained efficient contract, indemnities consist of both a lump sum payment and a payment that is proportional to the yield shortfall. Because lump sum payments may not be feasible to implement, efficiency-enhancing modifications to standard contracts are also proposed. Copyright 2000, Oxford University Press.

Suggested Citation

  • James A. Vercammen, 2000. "Constrained Efficient Contracts for Area Yield Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 856-864.
    • Handle: RePEc:oup:ajagec:v:82:y:2000:i:4:p:856-864
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    File URL: http://hdl.handle.net/10.1111/0002-9092.00086
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    Cited by:

    1. 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.
    2. Matthieu Stigler & David Lobell, 2020. "On the benefits of index insurance in US agriculture: a large-scale analysis using satellite data," Papers 2011.12544, arXiv.org, revised Nov 2021.
    3. 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.
    4. Mahul, Olivier, 2002. "Hedging Price Risk in the Presence of Crop Yield and Revenue Insurance," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24881, European Association of Agricultural Economists.
    5. Carriquiry, Miguel A. & Babcock, Bruce A. & Hart, Chad E., 2008. "Using a Farmer's Beta for Improved Estimation of Expected Yields," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(1), pages 1-17, April.
    6. Hennessy, David A. & Saak, Alexander E. & Babcock, Bruce A., 2003. "Fair Value Of Whole-Farm And Crop-Specific Revenue Insurance," 2003 Annual meeting, July 27-30, Montreal, Canada 21988, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Anderson, Jock R., 2003. "Risk in rural development: challenges for managers and policy makers," Agricultural Systems, Elsevier, vol. 75(2-3), pages 161-197.
    8. Bharat Ramaswami & Terry L. Roe, 2002. "Aggregation in area yield insurance:The linear additive model," Discussion Papers 02-08, Indian Statistical Institute, Delhi.
    9. Stigler, Matthieu M. & Lobell, David, 2020. "Suitability of index insurance: new insights from satellite data," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304663, Agricultural and Applied Economics Association.
    10. Zant, Wouter, 2008. "Hot Stuff: Index Insurance for Indian Smallholder Pepper Growers," World Development, Elsevier, vol. 36(9), pages 1585-1606, September.
    11. Mahul, Olivier, 2002. "Hedging Price Risk In The Presence Of Crop Yield And Revenue Insurance," 2002 Conference, April 22-23, 2002, St. Louis, Missouri 19070, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.

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