Skip to main content Accessibility help
×
Home

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

  • Shyam Adhikari (a1), Thomas O. Knight (a2) and Eric J. Belasco (a3)

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.

Copyright

References

Hide All
Atwood, J., Shaik, S., and Watts, M. 2002. “Can Normality Be Assumed for Crop Insurance?Canadian Journal of Agricultural Economics 50(2): 171184.
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): 5263.
Chavas, J.P. 2004. Risk Analysis in Theory and Practice. London: Elsevier Academic Press.
Glauber, J.W. 2004. “Crop Insurance Reconsidered.” American Journal of Agricultural Economics 86(5): 11791195.
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): 139153.
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.
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): 163182.
Ker, A.P., and Goodwin, B.K. 2000. “Nonparametric Estimation of Crop Insurance Rates Revisited.” American Journal of Agricultural Economics 82(2): 463478.
Mahul, O. 1999. “Optimal Area Yield Crop Insurance.” American Journal of Agricultural Economics 81(1): 7582.
Miranda, M.J. 1991. “Area Yield Crop Insurance Reconsidered.” American Journal of Agricultural Economics 73(2): 233242.
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.
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): 653659.
Umarov, A. 2009. “Three Essays on Crop Insurance: RMA's Rules and Participation, and Perceptions.” Ph.D. thesis, University of Illinois at Urbana-Champaign.
Yu, T., and Babcock, B.A. 2010. “Are U.S. Corn and Soybeans Becoming More Drought Tolerant?American Journal of Agricultural Economics 92(5): 13101323.
Woodard, J.D. 2009. “Three Essays on Systemic Risk and Rating in Crop Insurance Market.” Ph.D. dissertation, University of Illinois Urbana Champaign.

Keywords

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed