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Revenue Risk-Reduction Impacts of Crop Insurance in a Multicrop Framework

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  • Joshua D. Woodard
  • Bruce J. Sherrick
  • Gary D. Schnitkey

Abstract

The authors develop a multicrop insurance model to evaluate crop insurance decisions when several crops are produced. The results suggest that the diversification effects derived from producing multiple crops can substantially alter the risk-reduction impacts of crop insurance versus if the decision is viewed from the perspective of a single crop. Further, the relatedness of crop production and price responses among crops differs considerably across insurance products and strategies. As a result, insurance strategies that might provide the maximum risk reduction for an individual crop do not necessarily carry over to the multicrop case. Copyright 2010, Oxford University Press.

Suggested Citation

  • Joshua D. Woodard & Bruce J. Sherrick & Gary D. Schnitkey, 2010. "Revenue Risk-Reduction Impacts of Crop Insurance in a Multicrop Framework," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(3), pages 472-488.
    • Handle: RePEc:oup:apecpp:v:32:y:2010:i:3:p:472-488
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    File URL: http://hdl.handle.net/10.1093/aepp/ppq014
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    References listed on IDEAS

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    1. Bruce J. Sherrick & Fabio C. Zanini & Gary D. Schnitkey & Scott H. Irwin, 2004. "Crop Insurance Valuation under Alternative Yield Distributions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 406-419.
    2. Miller, J. Corey & Coble, Keith H. & Barnett, Barry J., 2000. "Investigating The Implications Of Multi-Crop Revenue Insurance For Producer Risk Management," Professional Presentations 15802, Mississippi State University, Department of Agricultural Economics.
    3. Joshua D. Woodard & Philip Garcia, 2008. "Basis risk and weather hedging effectiveness," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 68(1), pages 99-117, May.
    4. Coble, Keith H. & Heifner, Richard G. & Zuniga, Manuel, 2000. "Implications Of Crop Yield And Revenue Insurance For Producer Hedging," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(2), pages 1-21, December.
    5. Scott M. Swinton & Robert P. King, 1991. "Evaluating Robust Regression Techniques for Detrending Crop Yield Data with Nonnormal Errors," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(2), pages 446-451.
    6. Keith H. Coble, 2004. "The joint effect of government crop insurance and loan programmes on the demand for futures hedging," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 31(3), pages 309-330, September.
    7. Barry J. Barnett & Dmitry V. Vedenov, 2007. "Is There a Viable Market for Area-Based Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 508-519.
    8. Mattos, Fabio & Garcia, Philip & Nelson, Carl, 2008. "Relaxing standard hedging assumptions in the presence of downside risk," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(1), pages 78-93, February.
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    Cited by:

    1. Jansen, Jim A. & Stockton, Matthew C. & Lubben, Bradley D., 2012. "Modeling Correlated and Disaggregated Crop Revenue Distributions: Implications under Mixed Policy and Program Initiatives," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124688, Agricultural and Applied Economics Association.
    2. Preston, Richard & Walters, Cory G., 2015. "Risk Management Properties of the 2014 Farm Bill," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 206435, Agricultural and Applied Economics Association.
    3. Ying-Erh Chen & Barry K Goodwin, 2015. "Policy Design of Multi-Year Crop Insurance Contracts with Partial Payments," PLOS ONE, Public Library of Science, vol. 10(12), pages 1-15, December.
    4. Dolginow, Joseph & Massey, Raymond E. & Myers, Brent & Kitchen, Newell, 2013. "Adjusting Crop Insurance APH Calculation to Accommodate Biomass Production," 2013 AAEA: Crop Insurance and the Farm Bill Symposium 156945, Agricultural and Applied Economics Association.
    5. Fei Chen & Xiang-Long Xu & Zhan Yang & Hua-Wei Tan & Liang Zhang, 2015. "The Willingness-to-Pay for General Practitioners in Contractual Service and Influencing Factors among Empty Nesters in Chongqing, China," IJERPH, MDPI, vol. 12(8), pages 1-12, August.
    6. Zaura Fadhliani & Jeff Luckstead & Eric J. Wailes, 2019. "The impacts of multiperil crop insurance on Indonesian rice farmers and production," Agricultural Economics, International Association of Agricultural Economists, vol. 50(1), pages 15-26, January.

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