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Aggregation in Area-Yield Crop Insurance: The Linear Additive Model

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Author Info

  • Bharat Ramaswami
  • Terry L. Roe

Abstract

Previous analyses of area yield crop insurance have used a linear additive model (LAM) to express the relationship between individual and area yield. However, the theoretical foundations of the LAM are unknown. This shortcoming is addressed by establishing two conditions linking microvariables and LAM parameters. The conditions relate to the interaction of risks in individual technologies and the extent of aggregation. If systemic and individual risks are additive in individual yields, and if the law of large numbers hold, then the LAM obtains. This article also shows how departures from these conditions affect the results derived from a LAM analysis. Copyright 2004, Oxford University Press.

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File URL: http://hdl.handle.net/10.1111/j.0092-5853.2004.00588.x
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Bibliographic Info

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

Volume (Year): 86 (2004)
Issue (Month): 2 ()
Pages: 420-431

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Handle: RePEc:oup:ajagec:v:86:y:2004:i:2:p:420-431

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Cited by:
  1. Robert Kast, 2011. "Managing financial risks due to natural catastrophes," Working Papers hal-00610241, HAL.
  2. repec:idb:brikps:50218 is not listed on IDEAS
  3. Diego Arias & Katia Covarrubias, 2006. "Agricultural Insurance in Mesoamerica: An Opportunity to Deepen Rural Financial Markets," IDB Publications 36538, Inter-American Development Bank.
  4. Geoffroy Enjolras & Robert Kast, 2012. "Combining participating insurance and financial policies: A new risk management instrument against natural disasters in agriculture," Agricultural Finance Review, Emerald Group Publishing, vol. 72(1), pages 156-178, March.
  5. Carriquiry, Miguel A. & Babcock, Bruce A. & Hart, Chad E., 2008. "Using a Farmer's Beta for Improved Estimation of Expected Yields," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(01), April.
  6. Phelippe-Guinvarc'h, Martial V. & Cordier, Jean E., 2006. "A private management strategy for the crop yield insurer: A theoretical approach and tests," Insurance: Mathematics and Economics, Elsevier, vol. 39(1), pages 35-46, August.
  7. Mitchell, Paul D. & Knight, Thomas O., 2007. "Economic Analysis of Supplemental Deductible Coverage as Recommended in the USDA's 2007 Farm Bill Proposal," Staff Paper Series 509, University of Wisconsin, Agricultural and Applied Economics.
  8. Geoffroy Enjolras & Robert Kast & Patrick Sentis, 2009. "Diversification in Area-Yield Crop Insurance : The Multi Linear Additive Model," Working Papers 09-15, LAMETA, Universtiy of Montpellier, revised Nov 2009.

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