Hostname: page-component-cd9895bd7-gvvz8 Total loading time: 0 Render date: 2024-12-23T09:06:07.533Z Has data issue: false hasContentIssue false
  • English
  • Français

Evaluation of Crop Insurance Yield Guarantees and Producer Welfare with Upward-Trending Yields

Published online by Cambridge University Press:  15 September 2016

Shyam Adhikari ,
Thomas O. Knight  and
Eric J. Belasco
Shyam Adhikari
Affiliation:
Department of Agricultural and Applied Economics at Texas Tech University, in Lubbock, Texas
Thomas O. Knight
Affiliation:
Department of Agricultural and Applied Economics at Texas Tech University
Eric J. Belasco
Affiliation:
Department of Agricultural Economics and Economics at Montana State University, in Bozeman, Montana
Get access Rights & Permissions [Opens in a new window]

Abstract

Actual Production History (APH) yields play a critical role in determining the coverage offered to producers by the Risk Management Agency's yield-based crop insurance products. Using both county and individual insured unit data, we examine the impact of APH yield trends for Texas cotton and Illinois com. Our findings indicate that biases due to using simple average APH yields when yields are trending upward reduce the expected indemnity and actuarially fair premium rate. The estimated welfare effect also varies significantly with different commonly used detrending approaches. This study demonstrates that producer welfare can be enhanced through proper treatment of yield trends in crop insurance programs.

Keywords

actual production historycrop insuranceyield trendyield guarantee
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 41 , Issue 3 , December 2012 , pp. 367 - 376
Copyright
Copyright © 2012 Northeastern Agricultural and Resource Economics Association 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Atwood, J., Shaik, S., and Watts, M. 2002. “Can Normality Be Assumed for Crop Insurance?” Canadian Journal of Agricultural Economics 50(2): 171–184.Google Scholar
Carriquiry, M.A., Babcock, B.A., and Hart, C.E. 2008. “Using a Farmer's Beta for Improved Estimation of Expected Yields.” Journal of Agricultural and Resource Economics 33(1): 52–63.Google Scholar
Chavas, J.P. 2004. Risk Analysis in Theory and Practice. London: Elsevier Academic Press.Google Scholar
Glauber, J.W. 2004. “Crop Insurance Reconsidered.” American Journal of Agricultural Economics 86(5): 1179–1195.Google Scholar
Goodwin, B.K., and Ker, A.P. 1998. “Nonparametric Estimation of Crop Yield Distributions: Implications for Rating Group Risk (GRP) Crop Insurance Contracts.” American Journal of Agricultural Economics 80(1): 139–153.CrossRefGoogle Scholar
Goodwin, B.K., and Mahul, O. 2004. “Risk Modeling Concepts Relating to the Design and Rating of Agricultural Insurance Contracts.” World Bank Policy Research Working Paper No. 392, World Bank, Washington, D.C.Google Scholar
Harri, A., Erdem, C., Coble, K.H., and Knight, T.O. 2009. “Crop Yield Distributions: Reconciliation of Previous Research and Statistical Tests for Normality.” Applied Economic Perspectives and Policy 31(1): 163–182.Google Scholar
Ker, A.P., and Goodwin, B.K. 2000. “Nonparametric Estimation of Crop Insurance Rates Revisited.” American Journal of Agricultural Economics 82(2): 463–478.Google Scholar
Mahul, O. 1999. “Optimal Area Yield Crop Insurance.” American Journal of Agricultural Economics 81(1): 75–82.Google Scholar
Miranda, M.J. 1991. “Area Yield Crop Insurance Reconsidered.” American Journal of Agricultural Economics 73(2): 233–242.Google Scholar
Richardson, J.W., Outlaw, J.L., Knappek, G.M., Raultson, J.M., Herbst, B.K., Anderson, D.P., and Klose, S.L. 2008. “Representative Farms Economic Outlook for the December 2008 FAPRI/AFPC Baseline.” Agricultural and Food Policy Center, Texas A&M University, College Station, TX.Google Scholar
Skees, J.R., and Reed, M.R. 1986. “Rate Making for Farm Level Crop Insurance: Implications for Adverse Selection.” American Journal of Agricultural Economics 68(3): 653–659.Google Scholar
Umarov, A. 2009. “Three Essays on Crop Insurance: RMA's Rules and Participation, and Perceptions.” Ph.D. thesis, University of Illinois at Urbana-Champaign.Google Scholar
Yu, T., and Babcock, B.A. 2010. “Are U.S. Corn and Soybeans Becoming More Drought Tolerant?” American Journal of Agricultural Economics 92(5): 1310–1323.Google Scholar
Woodard, J.D. 2009. “Three Essays on Systemic Risk and Rating in Crop Insurance Market.” Ph.D. dissertation, University of Illinois Urbana Champaign.Google Scholar