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Optimal Coverage Level Choice with Individual and Area Insurance Plans

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  • Harun Bulut
  • Keith J. Collins
  • Thomas P. Zacharias

Abstract

We theoretically a farmer's optimal use of area and individual crop insurance when area and individual losses are positively but imperfectly correlated. If premium rates for both plans are actuarially fair, the farmer will demand full individual insurance and no area insurance. If area insurance is free and individual insurance is offered at an actuarially fair rate, area insurance replaces a portion of individual insurance demand. If individual insurance is offered as a wrap around the area plan at an actuarially fair rate and area insurance is free, the farmer will demand excess individual insurance and some area insurance. Copyright 2012, Oxford University Press.

Suggested Citation

  • Harun Bulut & Keith J. Collins & Thomas P. Zacharias, 2012. "Optimal Coverage Level Choice with Individual and Area Insurance Plans," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(4), pages 1013-1023.
  • Handle: RePEc:oup:ajagec:v:94:y:2012:i:4:p:1013-1023
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    File URL: http://hdl.handle.net/10.1093/ajae/aas055
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    Cited by:

    1. Adhikari, Shyam, 2015. "Optimal Coverage Level and Producer Participation in Supplemental Coverage Option in Yield and Revenue Protection Crop Insurance," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205053, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    2. Bulut, Harun, 2016. "U.S. Farmers’ Insurance Choices under Expected Utility Theory and Cumulative Prospect Theory," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236019, Agricultural and Applied Economics Association.
    3. Gerlt, Scott & Thompson, Wyatt & Miller, Douglas, 2014. "Exploiting the Relationship between Farm-Level Yields and County-Level Yields for Applied Analysis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(2), August.

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