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Optimal Area-Yield Crop Insurance Reconsidered

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  • Jean-Marc Bourgeon
  • Robert G. Chambers

Abstract

The implementability of area-yield insurance contracts in the presence of symmetric and asymmetric information about the farmer's “beta” linking his yield to the risk-pool's yield is examined. In the presence of fixed costs and symmetric information Mahul's result that optimality requires setting the slope of the indemnity schedule equal to each farmer's beta is confirmed. When there is asymmetric information between the insurer and the farmer, however, this full-insurance contract is vulnerable to adverse selection, and therefore may not be implementable for general cost structures. The optimal area-yield insurance contract under asymmetric information is characterized. Copyright 2003, Oxford University Press.

Suggested Citation

  • Jean-Marc Bourgeon & Robert G. Chambers, 2003. "Optimal Area-Yield Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 590-604.
    • Handle: RePEc:oup:ajagec:v:85:y:2003:i:3:p:590-604
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    File URL: http://hdl.handle.net/10.1111/1467-8276.00458
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    Cited by:

    1. Bokusheva, Raushan, 2004. "Crop insurance in transition: A qualitative and quantitative assessment of insurance products (Preliminary results)," IAMO Discussion Papers 14869, Institute of Agricultural Development in Transition Economies (IAMO).
    2. Douadia Bougherara & Laurent Piet, 2018. "On the role of probability weighting on WTP for crop insurance with and without yield skewness," Working Papers hal-02790605, HAL.
    3. Mogues, Tewodaj & Yu, Bingxin & Fan, Shenggen & McBride, Linden, 2012. "The impacts of public investment in and for agriculture: synthesis of the existing evidence," ESA Working Papers 288994, Food and Agriculture Organization of the United Nations, Agricultural Development Economics Division (ESA).
    4. Arias, Diego & Covarrubias, Katia, 2006. "Agricultural Insurance in Mesoamerica: An Opportunity to Deepen Rural Financial Markets," IDB Publications (Working Papers) 3042, Inter-American Development Bank.
    5. Lauriane Yehouenou & Barry J Barnett & Ardian Harri & Keith H Coble, 2018. "STAX Appeal?," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 40(4), pages 563-584, December.
    6. Amponsah, Lawrence, 2016. "Modelling the effect of public investment on agricultural productivity in Ghana," MPRA Paper 70924, University Library of Munich, Germany.
    7. Heidelbach, Olaf & Bokusheva, Raushan, 2009. "Crop insurance market development in a transition economy: The case of Kazakhstan," 2009 Conference, August 16-22, 2009, Beijing, China 51614, International Association of Agricultural Economists.
    8. Diego Arias & Katia Covarrubias, 2006. "Agricultural Insurance in Mesoamerica: An Opportunity to Deepen Rural Financial Markets," IDB Publications (Working Papers) 36538, Inter-American Development Bank.
    9. Enjolras, Geoffroy & Capitanio, Fabian & Adinolfi, Felice, 2012. "The Demand for Crop Insurance: Combined Approaches for France and Italy," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 13(1), pages 1-18.
    10. Zulauf, Carl R. & Demircan, Vecdi & Scnhitkey, Gary & Barnaby, Glenn Arthur, Jr. & Ibendahl, Gregg & Herbel, Kevin, 2013. "Examining Contemporaneous Farm and County Losses Using Farm Level Data," 2013 AAEA: Crop Insurance and the Farm Bill Symposium 157812, Agricultural and Applied Economics Association.
    11. Bougherara, Douadia & Piet, Laurent, 2014. "The Impact of Farmers’ Risk Preferences on the Design of an Individual Yield Crop Insurance," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 183082, European Association of Agricultural Economists.
    12. Ker, Alan. P & Tolhurst, Tor & Liu, Yong, 2015. "Rating Area-yield Crop Insurance Contracts Using Bayesian Model Averaging and Mixture Models," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205211, Agricultural and Applied Economics Association.
    13. Bokusheva, Raushan, 2004. "Crop insurance in transition: a qualitative and quantitative assessment of insurance products," IAMO Discussion Papers 76, Leibniz Institute of Agricultural Development in Transition Economies (IAMO).
    14. Heidelbach, Olaf, 2007. "Efficiency of selected risk management instruments: An empirical analysis of risk reduction in Kazakhstani crop production," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 40, number 92323.
    15. Capitanio, Fabian & Adinolfi, Felice & Di Pasquale, J. & Contò, F., 2013. "¿Cuáles son los determinantes de la demanda de seguros agrícolas en Italia?," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 13(01).
    16. Matthieu Stigler & David Lobell, 2020. "On the benefits of index insurance in US agriculture: a large-scale analysis using satellite data," Papers 2011.12544, arXiv.org, revised Nov 2021.
    17. Heidelbach, Olaf, 2006. "Efficiency of Selected Risk Management Instruments - An Empirical Analysis of Risk Reduction in Kazakhstani Crop Production," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25243, International Association of Agricultural Economists.
    18. Matthieu Stigler & David Lobell, 2021. "Optimal index insurance and basis risk decomposition: an application to Kenya," Papers 2111.08601, arXiv.org, revised Mar 2023.
    19. Stigler, Matthieu M. & Lobell, David, 2020. "Suitability of index insurance: new insights from satellite data," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304663, Agricultural and Applied Economics Association.

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