Using a Farmer's Beta for Improved Estimation of Expected Yields
AbstractEffects of sampling error in estimation of farmersâ€™ mean yields for crop insurance purposes and their implications for actuarial soundness are explored using farm-level corn yield data in Iowa. Results indicate that sampling error, combined with nonlinearities in the indemnity function, leads to empirically estimated insurance rates that exceed actuarially fair values. The difference depends on the coverage level, the number of observations used, and the participation strategy followed by farmers. A new estimator for mean yields based on the decomposition of farm yields into systemic and idiosyncratic components is proposed, which could lead to improved rate-making and reduce adverse selection.
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Bibliographic InfoArticle provided by Western Agricultural Economics Association in its journal Journal of Agricultural and Resource Economics.
Volume (Year): 33 (2008)
Issue (Month): 01 (April)
actual production history (APH); adverse selection; crop insurance; mean yields estimation; sampling error; Crop Production/Industries; Farm Management;
Other versions of this item:
- Carriquiry, Miguel A. & Babcock, Bruce A. & Hart, Chad E., 2008. "Using a Farmer's Beta for Improved Estimation of Expected Yields," Staff General Research Papers 12937, Iowa State University, Department of Economics.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Zanini, Fabio C. & Sherrick, Bruce J. & Schnitkey, Gary D. & Irwin, Scott H., 2001.
"Crop Insurance Valuation Under Alternative Yield Distributions,"
2001 Conference, April 23-24, 2001, St. Louis, Missouri
18953, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
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- Adhikari, Shyam & Knight, Thomas O. & Belasco, Eric J., 2012. "Evaluation of Crop Insurance Yield Guarantees and Producer Welfare with Upward-Trending Yields," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(3), December.
- Octavio A. Ramirez & Carlos A. Carpio, 2012. "Premium estimation inaccuracy and the actuarial performance of the US crop insurance program," Agricultural Finance Review, Emerald Group Publishing, vol. 72(1), pages 117-133, March.
- Ramirez, Octavio A. & Carpio, Carlos E. & Rejesus, Roderick M., 2011. "Can Crop Insurance Premiums Be Reliably Estimated?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 40(1), April.
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