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Climate and agricultural risk: measuring the effect of ENSO on U.S. crop insurance

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  • Jesse B. Tack
  • David Ubilava

Abstract

Predictive models of climatic phenomena can aid in insurance program design and decision making. Extreme weather outcomes have been linked to the El Niño Southern Oscillation (ENSO), which globally impacts agricultural production. This study demonstrates that extreme ENSO events alter cotton yield distributions in the Southeastern United States. These impacts translate into economically meaningful effects on crop insurance premium rates. Commercial insurers can use publicly available information to determine if government-set premium rates are mispriced, and in turn extract economic rents via the federally mandated Standard Reinsurance Agreement. By ceding underpriced policies in El Niño and La Niña years, we find that private insurance companies can reduce paid indemnities by 10–15% on average.

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  • Jesse B. Tack & David Ubilava, 2015. "Climate and agricultural risk: measuring the effect of ENSO on U.S. crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 46(2), pages 245-257, March.
  • Handle: RePEc:bla:agecon:v:46:y:2015:i:2:p:245-257
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    Cited by:

    1. Bastianin, Andrea & Lanza, Alessandro & Manera, Matteo, 2016. "Economic Impacts of El Niño Southern Oscillation: Evidence from the Colombian Coffee Market," EIA: Climate Change: Economic Impacts and Adaptation 250258, Fondazione Eni Enrico Mattei (FEEM).
    2. Andrea BASTIANIN & Alessandro LANZA & Matteo MANERA, 2016. "Economic Impacts of El Niño Southern Oscillation: Evidence from the Colombian Coffee Market," Departmental Working Papers 2016-14, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    3. Checo, Ariadne & Mejía, Mariam & Ramírez, Francisco A., 2017. "El rol de los regímenes de precipitaciones sobre la dinámica de precios y actividad del sector agropecuario de la República Dominicana durante el período 2000-2016
      [The role of rainfall regimes on
      ," MPRA Paper 80301, University Library of Munich, Germany.
    4. Ubilava, David & Orlowski, Jan, 2016. "The Predictive Content of Climate Anomalies for Agricultural Production: Does ENSO Really Matter?," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236281, Agricultural and Applied Economics Association.

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