Can expert knowledge compensate for data scarcity in crop insurance pricing?
AbstractAlthough there is an increasing interest in index-based insurances in many developing countries, crop data scarcity hinders its implementation by forcing insurers to charge higher premiums. Expert knowledge has been considered a valuable information source to augment limited data in insurance pricing. This article investigates whether the use of expert knowledge can mitigate model risk which arises from insufficient statistical data. We adopt the Bayesian framework that allows for the combination of scarce data and expert knowledge, to estimate the risk parameter and buffer load. In addition, a benchmark for the evaluation of expert information is created by using a richer dataset generated from resampling. We find that expert knowledge reduces the parameter uncertainty and changes the insurance premium in the correct direction, but that the effect of the correction is sensitive to different strike levels of insurance indemnity.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 149431.
Date of creation: 2013
Date of revision:
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expert knowledge; data scarcity; crop insurance pricing; Bayesian estimation; Agricultural Finance; Farm Management; Research Methods/ Statistical Methods; Risk and Uncertainty; C14; Q19;
Other versions of this item:
- Zhiwei Shen & Martin Odening & Ostap Okhrin, 2013. "Can expert knowledge compensate for data scarcity in crop insurance pricing?," SFB 649 Discussion Papers SFB649DP2013-030, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- Q19 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Other
This paper has been announced in the following NEP Reports:
- NEP-AGR-2013-06-04 (Agricultural Economics)
- NEP-ALL-2013-06-04 (All new papers)
- NEP-IAS-2013-06-04 (Insurance 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.:
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SFB 649 Discussion Papers
SFB649DP2010-053, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
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