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Developing And Pricing Precipitation Insurance

Author

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  • Martin, Steven W.
  • Barnett, Barry J.
  • Coble, Keith H.

Abstract

Production agriculture and agribusiness are exposed to many weather-related risks. Recent years have seen the emergence of an increased interest in weather-based derivatives as mechanisms for sharing risks due to weather phenomena. In this study, a unique precipitation derivative is proposed that allows the purchaser to specify the parameters of the idemnity function. Pricing methods are presented in the context of a cotton harvest example from Mississippi. Our findings show a potential for weather derivatives to serve niche markets within U.S. agriculture.

Suggested Citation

  • Martin, Steven W. & Barnett, Barry J. & Coble, Keith H., 2001. "Developing And Pricing Precipitation Insurance," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(01), July.
  • Handle: RePEc:ags:jlaare:31155
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    File URL: http://purl.umn.edu/31155
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    References listed on IDEAS

    as
    1. Quiggin, John C. & Karagiannis, Giannis & Stanton, J., 1993. "Crop Insurance And Crop Production: An Empirical Study Of Moral Hazard And Adverse Selection," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 37(02), August.
    2. James W. Mjelde & Harvey S.J. Hill & John F. Griffiths, 1998. "A Review of Current Evidence on Climate Forecasts and Their Economic Effects in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(5), pages 1089-1095.
    3. Jerry R. Skees & J. Roy Black & Barry J. Barnett, 1997. "Designing and Rating an Area Yield Crop Insurance Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 430-438.
    4. Richard E. Just & Linda Calvin & John Quiggin, 1999. "Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 834-849.
    5. Ker, Alan P. & McGowan, Pat, 2000. "Weather-Based Adverse Selection And The U.S. Crop Insurance Program: The Private Insurance Company Perspective," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(02), December.
    6. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1997. "An Expected-Indemnity Approach to the Measurement of Moral Hazard in Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 216-226.
    7. Turvey, Calum G., 1999. "Weather Insurance, Crop Production And Specific Event Risk," Working Papers 34101, University of Guelph, Department of Food, Agricultural and Resource Economics.
    8. Haiping Luo & Jerry R. Skees & Mary A. Marchant, 1994. "Weather Information and the Potential for Intertemporal Adverse Selection in Crop Insurance," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 16(3), pages 441-451.
    9. Vincent H. Smith & Barry K. Goodwin, 1996. "Crop Insurance, Moral Hazard, and Agricultural Chemical Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 428-438.
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    Keywords

    Risk and Uncertainty;

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