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Evaluation of an index-based risk management contract for agricultural activities

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  • Weynants, Stephanie
  • Gaspart, Frederic
  • Frahan, Bruno Henry de

Abstract

This paper proposes and evaluates area index-based financial contracts for specific farm activities. These financial contracts allow not only for removing moral hazard and adverse selection as index insurances do, but also for adding more flexibility and, hence, better risk protection. The evaluation of these financial contracts uses FADN farm data of Belgium from 1990 to 2007. Area indexes based on yield and yield-in-value perform well in stabilising revenues from some farm activities, but badly from some others. The variation in the estimated actuarially fair premiums across agricultural area shows the importance of designing those financial contracts according to homogenous agricultural area.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 123rd Seminar, February 23-24, 2012, Dublin, Ireland with number 122483.

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Date of creation: 23 Feb 2012
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Handle: RePEc:ags:eaa123:122483

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Keywords: agricultural risk management; index insurance; financial contract; Belgium; Risk and Uncertainty; D81; Q12; Q18;

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