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Small Area Estimation of Insurance Premiums and Basis Risk

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  • Awondo, Sebastain N.
  • Datta, Gauri S.
  • Ramirez, Octavio A.
  • Fonsah, Esendugue Greg
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    Abstract

    The magnitude of basis risk between Actual Production History (APH) and Group Risk Plan (GRP) contracts across corn farms in Illinois counties is estimated using pseudo-simulated yields with farm specific geospatial climate data. A two-step hierarchical Bayes small area estimator was used to address problems related to lack of representative sample, aggrega- tion bias, properly accounting for spatial and temporal heterogeneity and uncertainty in parameter estimates. We found wide variation in expected basis risk across farms within and between counties. Expected basis risk was found to sharply increase under APH plans with higher coverage levels.

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    File URL: http://purl.umn.edu/143109
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    Bibliographic Info

    Paper provided by Southern Agricultural Economics Association in its series 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida with number 143109.

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    Date of creation: Feb 2013
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    Handle: RePEc:ags:saea13:143109

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    Related research

    Keywords: Crop Insurance; Basis risk; Small area estimation; Hierarchical Bayes; Agricultural Finance; Research Methods/ Statistical Methods;

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