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How High the Hedge: Relationships between Prices and Yields in the Federal Crop Insurance Program

Author

Listed:
  • Ramsey, A. Ford
  • Goodwin, Barry K.
  • Ghosh, Sujit K.

Abstract

The theory of the natural hedge states that agricultural yields and prices are inversely related. Actuarial rules for U.S. crop revenue insurance assume that dependence between yield and price is constant across all counties within a state and that dependence can be adequately described by the Gaussian copula. We use nonlinear measures of association and a selection of bivariate copulas to empirically characterize spatially-varying dependence between prices and yields and examine premium rate sensitivity for all corn producing counties in the United States. A simulation analysis across copula types and parameter values exposes hypothetical impacts of actuarial changes.

Suggested Citation

  • Ramsey, A. Ford & Goodwin, Barry K. & Ghosh, Sujit K., 2019. "How High the Hedge: Relationships between Prices and Yields in the Federal Crop Insurance Program," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 44(2), May.
    • Handle: RePEc:ags:jlaare:287967
    DOI: 10.22004/ag.econ.287967
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    Citations

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    Cited by:

    1. Martial Phélippé-Guinvarc'H & J. Cordier, 2019. "Le risque économique : la difficile agrégation des risques à l'échelle des exploitations et des filières," Post-Print hal-02481080, HAL.
    2. Matthew Stuart & Cindy Yu & David A. Hennessy, 2023. "The Impact of Stocks on Correlations of Crop Yields and Prices and on Revenue Insurance Premiums using Semiparametric Quantile Regression," Papers 2308.11805, arXiv.org.
    3. William E. Maples & Anil K. Giri & Keith H. Coble & Dipak Subedi, 2022. "Impact of government programs on producer demand for hedging," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(3), pages 1126-1138, September.
    4. Marco Rogna & Günter Schamel & Alex Weissensteiner, 2023. "Modelling the switch from hail insurance to antihail nets," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(1), pages 118-136, January.
    5. A. Ford Ramsey & Barry K. Goodwin, 2019. "Value-at-Risk and Models of Dependence in the U.S. Federal Crop Insurance Program," JRFM, MDPI, vol. 12(2), pages 1-21, April.

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