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Premium Rate Determination In The Federal Crop Insurance Program: What Do Averages Have To Say About Risk?

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  • Goodwin, Barry K.

Abstract

This article reviews actuarial procedures used to calculate premium rates in the federal crop insurance program. Average yields are used as an important indicator of risk under current rating practices. The strength and validity of this relationship is examined using historical yield data drawn from a large sample of Kansas farms. The results indicate that assumed relationships between average yields and yield variation are tenuous and imply that rating procedures that rely on average yields may induce adverse selection.

Suggested Citation

  • Goodwin, Barry K., 1994. "Premium Rate Determination In The Federal Crop Insurance Program: What Do Averages Have To Say About Risk?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(2), pages 1-14, December.
    • Handle: RePEc:ags:jlaare:30747
    DOI: 10.22004/ag.econ.30747
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    References listed on IDEAS

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    1. Carl H. Nelson, 1990. "The Influence of Distributional Assumptions on the Calculation of Crop Insurance Premia," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 12(1), pages 71-78.
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    Keywords

    Risk and Uncertainty;

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