Revenue risk management, risk aversion and the use of Livestock Gross Margin for Dairy Cattle insurance
The Livestock Gross Margin Insurance for Dairy Cattle is a federally reinsured insurance program that enables US dairy producers to establish minimum levels of milk income net of feed cost. Given the structure of this program there are an infinite number of possible contract designs based on the choice of deductible level and proportion of production insured. Adding to this complexity, producers vary in their risk preferences, which affect the incentive to insure their margin. It is unclear as to how producers may adopt this program for revenue risk management. This paper investigates the interplay between producer risk preferences, contract design and the subsidization of premium in determining program coverage. We undertook this analysis within an expected utility framework. Optimal contracts under different rates of constant relative rate of risk aversion and subsidies were analyzed using a nonlinear optimization model. We found that total optimal coverage increased significantly with the level of risk of aversion at lower deductibles but as deductible level increased, the level of risk aversion had a lesser impact on total optimal coverages. As expected, at the same deductible and risk aversion levels, inclusion of a premium subsidy increased the total optimal coverage.
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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cabrera, Victor E. & Gould, Brian W. & Valvekar, Mayuri, 2009. "Livestock Gross Margin Insurance for Dairy Cattle: An Analysis of Program Performance and Cost under Alternative Policy Configurations," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49262, Agricultural and Applied Economics Association.
- Chad E. Hart & Dermot J. Hayes & Bruce A. Babcock, 2003.
"Insuring Eggs in Baskets,"
Center for Agricultural and Rural Development (CARD) Publications
03-wp339, Center for Agricultural and Rural Development (CARD) at Iowa State University.
- Chad E. Hart & Dermot J. Hayes & Bruce A. Babcock, 2006. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 54(1), pages 121-137, 03.
- Hart, Chad E. & Hayes, Dermot J. & Babcock, Bruce A., 2003. "Insuring Eggs in Baskets: Should the Government Insure Individual Risks?," Staff General Research Papers 10669, Iowa State University, Department of Economics.
- Chesney, Marc & Scott, Louis, 1989. "Pricing European Currency Options: A Comparison of the Modified Black-Scholes Model and a Random Variance Model," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 267-284, September.
- Just, Richard E. & Calvin, Linda & Quiggin, John, 1993.
"Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives,"
197809, University of Maryland, Department of Agricultural and Resource Economics.
- 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.
- Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May.
- Gould, John P, 1969. "The Expected Utility Hypothesis and the Selection of Optimal Deductibles for a Given Insurance Policy," The Journal of Business, University of Chicago Press, vol. 42(2), pages 143-51, April.
- Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
- Cabrera, Victor E. & Letson, David & Podesta, Guillermo, 2007. "The value of climate information when farm programs matter," Agricultural Systems, Elsevier, vol. 93(1-3), pages 25-42, March.
When requesting a correction, please mention this item's handle: RePEc:eee:agisys:v:104:y:2011:i:9:p:671-678. 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: (Zhang, Lei)
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.