IDEAS home Printed from https://ideas.repec.org/a/eme/afrpps/v70y2010i3p427-445.html
   My bibliography  Save this article

Evaluation of the reference yield calculation method in crop insurance

Author

Listed:
  • Roderick M. Rejesus
  • Barry K. Goodwin
  • Keith H. Coble
  • Thomas O. Knight

Abstract

Purpose - This article seeks to examine the reference yield calculation method used in crop insurance rating and provides recommendations that could potentially improve actuarial performance of the Federal crop insurance program. Design/methodology/approach - Conceptual, numerical, and statistical analysis is utilized to evaluate the reference yield calculation method used in the US Federal crop insurance program. Findings - The results suggest that reference yields, which at the time of this study are calculated using National Agricultural Statistics Service (NASS) data, do not accurately represent the average actual yields of the insured pool of producers in the Federal crop insurance program. In addition, it is found that not regularly updating these NASS‐based reference yields exacerbates this problem because these reference yields do not appropriately represent the current state of technological progress. Practical implications - The empirical analysis leads this paper to recommend a reference yield calculation procedure that utilizes county‐average yields from the risk management agency (RMA) participation database and an approach that uses spatially aggregated average yields in cases when data for a particular county are sparse. Originality/value - No previous study has investigated the reference yield calculation method in the Federal crop insurance program using both RMA and NASS data sets. Moreover, this study contributes to the small literature that examines various aspects of the actual production history (APH) rating platform and suggests refinements to improve actuarial performance.

Suggested Citation

  • Roderick M. Rejesus & Barry K. Goodwin & Keith H. Coble & Thomas O. Knight, 2010. "Evaluation of the reference yield calculation method in crop insurance," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 70(3), pages 427-445, November.
  • Handle: RePEc:eme:afrpps:v:70:y:2010:i:3:p:427-445
    DOI: 10.1108/00021461011088530
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/00021461011088530/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://www.emerald.com/insight/content/doi/10.1108/00021461011088530/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://libkey.io/10.1108/00021461011088530?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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.
    2. Knight, Thomas O. & Coble, Keith H., 1999. "Actuarial Effects of Unit Structure in the U.S. Actual Production History Crop Insurance Program," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 31(3), pages 519-535, December.
    3. Bruce A. Babcock & Chad E. Hart & Dermot J. Hayes, 2004. "Actuarial Fairness of Crop Insurance Rates with Constant Rate Relativities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 563-575.
    4. Thomas O. Knight & Keith H. Coble & Barry K. Goodwin & Roderick M. Rejesus & Sangtaek Seo, 2010. "Developing Variable Unit-Structure Premium Rate Differentials in Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(1), pages 141-151.
    5. Jerry R. Skees & Michael R. Reed, 1986. "Rate Making for Farm-Level Crop Insurance: Implications for Adverse Selection," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(3), pages 653-659.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Francis Tsiboe & Jesse Tack, 2022. "Utilizing Topographic and Soil Features to Improve Rating for Farm‐Level Insurance Products," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 52-69, January.
    2. Octavio A. Ramirez & Carlos A. Carpio, 2012. "Premium estimation inaccuracy and the actuarial performance of the US crop insurance program," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(1), pages 117-133, May.
    3. Tsiboe, Francis & Turner, Dylan, 2023. "Econometric Identification of Crop Insurance Participation," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 52(3), May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Joseph Cooper & Carl Zulauf & Michael Langemeier & Gary Schnitkey, 2012. "Implications of within county yield heterogeneity for modeling crop insurance premiums," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(1), pages 134-155, May.
    2. Alberto Garrido & David Zilberman, 2008. "Revisiting the demand for agricultural insurance: the case of Spain," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 68(1), pages 43-66, May.
    3. Malini, Nair, 2005. "Arbitrage, Cointegration and Testing the Unbiasedness Hypothesis in Coffee Futures Traded at the CSCE," MPRA Paper 37857, University Library of Munich, Germany.
    4. Sankalp Sharma & Cory G. Walters, 2020. "Influence of farm size and insured type on crop insurance returns," Agribusiness, John Wiley & Sons, Ltd., vol. 36(3), pages 440-452, June.
    5. Joseph A. Atwood & James F. Robison-Cox & Saleem Shaik, 2006. "Estimating the Prevalence and Cost of Yield-Switching Fraud in the Federal Crop Insurance Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 365-381.
    6. Atwood, Joseph A. & Robinson-Cox, Jim & Shaik, Saleem, 2004. "A Statistical Examination Of Yield Switching Fraud In The Federal Crop Insurance Program," 2004 Annual meeting, August 1-4, Denver, CO 19983, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Nathan D. DeLay & Hayley H. Chouinard & Cory G. Walters & Philip R. Wandschneider, 2020. "The influence of crop insurance agents on coverage choices: The role of agent competition," Agricultural Economics, International Association of Agricultural Economists, vol. 51(4), pages 623-638, July.
    8. Jisang Yu & Edward D. Perry, 2024. "Premium subsidies and selection in the federal crop insurance program," Journal of Agricultural Economics, Wiley Blackwell, vol. 75(1), pages 280-297, February.
    9. Knight, Thomas O. & Coble, Keith H., 1999. "Actuarial Effects of Unit Structure in the U.S. Actual Production History Crop Insurance Program," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 31(3), pages 519-535, December.
    10. Francis Tsiboe & Jesse Tack, 2022. "Utilizing Topographic and Soil Features to Improve Rating for Farm‐Level Insurance Products," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 52-69, January.
    11. Coleman, Jane A. & Shaik, Saleem, 2009. "Time-Varying Estimation of Crop Insurance Program in Altering North Dakota Farm Economic Structure," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49516, Agricultural and Applied Economics Association.
    12. Glauber, Joseph W., 2017. "Agricultural insurance and the WTO:," IFPRI book chapters, in: Bouët, Antoine; Laborde Debucquet, David (ed.), Agriculture, development, and the global trading system: 2000– 2015, chapter 10, International Food Policy Research Institute (IFPRI).
    13. Richards, Timothy J. & Manfredo, Mark R., 2003. "Infrequent Shocks and Rating Revenue Insurance: A Contingent Claims Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(2), pages 1-19, August.
    14. Zhiwei Shen & Martin Odening, 2013. "Coping with systemic risk in index-based crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 44(1), pages 1-13, January.
    15. Ramirez, Octavio A. & Carpio, Carlos E. & Rejesus, Roderick M., 2011. "Can Crop Insurance Premiums Be Reliably Estimated?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 40(01), pages 1-14, April.
    16. F. G. Santeramo & B. K. Goodwin & F. Adinolfi & F. Capitanio, 2016. "Farmer Participation, Entry and Exit Decisions in the Italian Crop Insurance Programme," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(3), pages 639-657, September.
    17. Mitchell, Paul D. & Knight, Thomas O., 2008. "Economic Analysis of Supplemental Deductible Coverage as Recommended in the USDA's 2007 Farm Bill Proposal," Agricultural and Resource Economics Review, Cambridge University Press, vol. 37(1), pages 117-131, April.
    18. Richards, Timothy J., 2000. "A Two-Stage Model Of The Demand For Specialty Crop Insurance," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(01), pages 1-18, July.
    19. Claassen, Roger & Carriazo, Fernando & Cooper, Joseph C. & Hellerstein, Daniel & Ueda, Kohei, 2011. "Grassland to Cropland Conversion in the Northern Plains: The Role of Crop Insurance, Commodity, and Disaster Programs," Economic Research Report 262239, United States Department of Agriculture, Economic Research Service.
    20. Peilu Zhang & Marco A. Palma, 2021. "Compulsory Versus Voluntary Insurance: An Online Experiment," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 106-125, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:afrpps:v:70:y:2010:i:3:p:427-445. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.