On the Possibility of a Private Crop Insurance Market: A Spatial Statistics Approach
Risk theory tells us if an insurer can effectively pool a large number of individuals to reduce total risk, the insurer can then provide insurance by charging a premium close to the actuarially fair rate. However, a common belief exists that risk can be effectively pooled only when random loss is independent. Therefore crop insurance markets cannot survive without government subsidy because crop yields are not independent among growers. In this article, we take a spatial statistics approach to examine the effectiveness of risk pooling for crop insurance under correlation. We develop a method for evaluating the effectiveness of risk pooling under correlation and apply the method to three major crops in the United States: wheat, soybeans, and corn. The empirical study shows that yields for the three crops present zero or negative correlation when two counties are far apart, which complies with a weaker condition than independence, finite-range positive dependency. The results show that effective risk pooling is possible and reveal a high possibility of a private crop insurance market in the United States. Copyright 2003 The Journal of Risk and Insurance.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 70 (2003)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.wiley.com/bw/journal.asp?ref=0022-4367&site=1|
More information through EDIRC
|Order Information:||Web: http://www.wiley.com/bw/subs.asp?ref=0022-4367|
When requesting a correction, please mention this item's handle: RePEc:bla:jrinsu:v:70:y:2003:i:1:p:111-124. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.