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The Effects of Crop Yield Insurance Designs on Farmer Participation and Welfare

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  • Steven D. Hanson
  • Robert J. Myers
  • J. Roy Black

Abstract

The performance of individual farm yield and area yield crop insurance programs is evaluated for a representative Iowa corn farm using numerical optimization of expected utility and simulation techniques. Several different contract design features are studied, including the nature of the yield index which triggers insurance payouts, alternative restrictions on coverage levels, and alternative pricing structures. Performance is evaluated in terms of impacts on farmer participation and welfare and is examined in a portfolio setting where futures and options are also available to farmers. The relative performance of different crop insurance designs is found to be particularly sensitive to restrictions on coverage levels, the size of premium loadings, and the degree to which individual farm yields are correlated with area yields. Copyright 1998, Oxford University Press.

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Bibliographic Info

Article provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.

Volume (Year): 80 (1998)
Issue (Month): 4 ()
Pages: 806-820

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Handle: RePEc:oup:ajagec:v:80:y:1998:i:4:p:806-820

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Cited by:
  1. Schnitkey, Gary D. & Sherrick, Bruce J. & Irwin, Scott H., 2002. "Evaluation of Risk Reductions Associated with Multi-Peril Crop Insurance Products," Proceedings: 2002 Regional Committee NC-221, October 7-8, 2002, Denver, Colorado 132375, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
  2. Barry Smit & Mark Skinner, 2002. "Adaptation options in agriculture to climate change: a typology," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 7(1), pages 85-114, March.
  3. Berg, Ernst, 2002. "Assessing the Farm Level Impacts of Yield and Revenue Insurance: an Expected Value-Variance Approach," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24834, European Association of Agricultural Economists.
  4. Lai, Jing-Yi & Myers, Robert J. & Hanson, Steven D., 2003. "Optimal On-Farm Grain Storage by Risk-Averse Farmers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(03), December.
  5. Murray-Prior, Roy B. & Wright, Vic, 2001. "Influence of strategies and heuristics on farmers’ response to change under uncertainty," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 45(4), December.
  6. Wang, H. Holly & Zhang, Hao, 2002. "Using The Spatial Statistics Approach To Analyze Yield Risk Pooling In The Us," 2002 Annual meeting, July 28-31, Long Beach, CA 19633, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  7. Murray-Prior, Roy B. & Wright, Vic, 2004. "Use of strategies and decision rules by Australian wool producers to manage uncertainty," AFBM Journal, Australasian Farm Business Management Network, vol. 1.
  8. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
  9. Lai, Jing-Yi & Myers, Robert J. & Hanson, Steven D., 2001. "Optimal Post-Harvest Grains Storage By Risk Averse Farmers," Staff Papers 11739, Michigan State University, Department of Agricultural, Food, and Resource Economics.
  10. Novak, James L. & Nadolnyak, Denis A. & McNider, Richard, 2008. "Analysis of Irrigated Corn Production Adoption Decisions in Alabama," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6756, Southern Agricultural Economics Association.
  11. M J Bhende, 2012. "Agricultural Insurance in India: Problems and Prospects," Working Papers id:4840, eSocialSciences.
  12. Coble, Keith H. & Zuniga, Manuel & Heifner, Richard, 2003. "Evaluation of the interaction of risk management tools for cotton and soybeans," Agricultural Systems, Elsevier, vol. 75(2-3), pages 323-340.
  13. Milton Boyd & Jeffrey Pai & Qiao Zhang & H. Holly Wang & Ke Wang, 2011. "Factors affecting crop insurance purchases in China: the Inner Mongolia region," China Agricultural Economic Review, Emerald Group Publishing, vol. 3(4), pages 441-450, November.
  14. Zanini, Fabio C. & Irwin, Scott H. & Schnitkey, Gary D. & Sherrick, Bruce J., 2000. "Estimating Farm-Level Yield Distributions For Corn And Soybeans In Illinois," 2000 Annual meeting, July 30-August 2, Tampa, FL 21720, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  15. Wang, Yang & Barnett, Barry J. & Coble, Keith H. & Harri, Ardian, 2012. "Yield Aggregation Impacts on a “Deep Loss” Systemic Risk Protection Program," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124875, Agricultural and Applied Economics Association.
  16. Wang, H. Holly & Du, Wen, 2005. "Intertemporal Risk Management Decisions of Farmers under Preference, Market, and Policy Dynamics," 2005 Annual meeting, July 24-27, Providence, RI 19526, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  17. Kellner, Ulla & Musshoff, Oliver, 2011. "Precipitation or water capacity indices? An analysis of the benefits of alternative underlyings for index insurance," Agricultural Systems, Elsevier, vol. 104(8), pages 645-653, October.
  18. Colson, Gregory & Fu, Shengfei & Ramirez, Octavio A., 2012. "Crop Insurance Savings Accounts," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124739, Agricultural and Applied Economics Association.

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