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Adaptive local parametric estimation of crop yields: implications for crop insurance rate making

Author

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  • Zhiwei Shen
  • Martin Odening
  • Ostap Okhrin

Abstract

The estimation model of crop yields is a prerequisite for deriving actuarially sound insurance premiums. A major challenge in estimating crop yield models arises from the non-stationarity of the data generating process due to technological change and climate change. In this paper, we introduce an adaptive local parametric approach to deal with the non-stationarity of crop yields. An empirical application to major crops in the USA indicates that yield risks for corn and cotton are decreasing, but are increasing for winter wheat. A rating analysis suggests that the proposed model shows potential to obtain more accurate rates than commonly used methodology.

Suggested Citation

  • Zhiwei Shen & Martin Odening & Ostap Okhrin, 2018. "Adaptive local parametric estimation of crop yields: implications for crop insurance rate making," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(2), pages 173-203.
    • Handle: RePEc:oup:erevae:v:45:y:2018:i:2:p:173-203.
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    File URL: http://hdl.handle.net/10.1093/erae/jbx028
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    Citations

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    Cited by:

    1. Yong Liu & Alan P. Ker, 2021. "Simultaneous borrowing of information across space and time for pricing insurance contracts: An application to rating crop insurance policies," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(1), pages 231-257, March.
    2. Niels Gillmann & Ostap Okhrin, 2023. "Adaptive local VAR for dynamic economic policy uncertainty spillover," Papers 2302.02808, arXiv.org.

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