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A Study on the Determination of Base Price for Crop Revenue Insurance

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  • Choi, Yejun

Abstract

Although crop revenue insurance has an advantage of ensuring farm revenue more stably compared with crop yield insurance, it is not easy to determine a base price on which the guaranteed revenue is determined. During two table top exercises from 2013 to 2014, the government applied common year price(historical average of market prices) for the base price. However, the common year price has a limitation of not reflecting the current market situation and raising an adverse selection problem. To determine more appropriate base price, this study compares three base price candidates; common year price, predicted price based on the supply and demand model, and theoretical future price. The result shows that the two predicted prices, common year price and the predicted price based on the supply and demand model are similar to actual prices. Even though the predicted price based on the model is more accurately predicted than common year price, the gap is not significantly large. Therefore, considering the objectivity security and ensuring common year revenue, the common year price is concluded to be the most reasonable as base price. The predicted price from the model could be considered as a reference for calculating insurance premium more accurately.

Suggested Citation

  • Choi, Yejun, 2015. "A Study on the Determination of Base Price for Crop Revenue Insurance," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 38(4), December.
    • Handle: RePEc:ags:jordng:330678
    DOI: 10.22004/ag.econ.330678
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    File URL: https://ageconsearch.umn.edu/record/330678/files/RE38-4-02.pdf
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    Keywords

    Demand and Price Analysis;

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