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Farmers' Subjective Yield Distributions: Calibration and Implications for Crop Insurance Valuation

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  • Umarov, Alisher
  • Sherrick, Bruce J.

Abstract

This paper examines the role of overconfidence in explaining farmer crop insurance purchasing decisions. The authors hypothesize that overconfidence could influence the participation decision and test this hypothesis. The preliminary results indicate that farmers are overconfident; however, the relationship between overconfidence and the insurance use remains uncertain.

Suggested Citation

  • Umarov, Alisher & Sherrick, Bruce J., 2005. "Farmers' Subjective Yield Distributions: Calibration and Implications for Crop Insurance Valuation," 2005 Annual meeting, July 24-27, Providence, RI 19396, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea05:19396
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    File URL: http://purl.umn.edu/19396
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    References listed on IDEAS

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    1. Nerlove, Marc & Bessler, David A., 2001. "Expectations, information and dynamics," Handbook of Agricultural Economics,in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 3, pages 155-206 Elsevier.
    2. Sherrick, Bruce J., 2002. "The Accuracy Of Producers' Probability Beliefs: Evidence And Implications For Insurance Valuation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(01), July.
    3. Bruce J. Sherrick & Fabio C. Zanini & Gary D. Schnitkey & Scott H. Irwin, 2004. "Crop Insurance Valuation under Alternative Yield Distributions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 406-419.
    4. Olivier Mahul & Brian D. Wright, 2003. "Designing Optimal Crop Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 580-589.
    5. Menkhoff, Lukas & Schmidt, Ulrich & Brozynski, Torsten, 2006. "The impact of experience on risk taking, overconfidence, and herding of fund managers: Complementary survey evidence," European Economic Review, Elsevier, vol. 50(7), pages 1753-1766, October.
    6. Heath, Chip & Tversky, Amos, 1991. "Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 5-28, January.
    7. Coble, Keith H. & Zuniga, Manuel & Heifner, Richard, 2003. "Evaluation of the interaction of risk management tools for cotton and soybeans," Agricultural Systems, Elsevier, vol. 75(2-3), pages 323-340.
    8. Kovalchik, Stephanie & Camerer, Colin F. & Grether, David M. & Plott, Charles R. & Allman, John M., 2005. "Aging and decision making: a comparison between neurologically healthy elderly and young individuals," Journal of Economic Behavior & Organization, Elsevier, vol. 58(1), pages 79-94, September.
    9. James S. Eales & Brian K. Engel & Robert J. Hauser & Sarahelen R. Thompson, 1990. "Grain Price Expectations of Illinois Farmers and Grain Merchandisers," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(3), pages 701-708.
    10. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1996. "Modeling Farm-Level Crop Insurance Demand with Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 439-447.
    11. Alba, Joseph W & Hutchinson, J Wesley, 2000. " Knowledge Calibration: What Consumers Know and What They Think They Know," Journal of Consumer Research, Oxford University Press, vol. 27(2), pages 123-156, September.
    12. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    13. David A. Bessler, 1980. "Aggregated Personalistic Beliefs on Yields of Selected Crops Estimated Using ARIMA Processes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(4), pages 666-674.
    14. Vincent H. Smith & Alan E. Baquet, 1996. "The Demand for Multiple Peril Crop Insurance: Evidence from Montana Wheat Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 189-201.
    15. Shiva S. Makki & Agapi Somwaru, 2001. "Farmers' Participation in Crop Insurance Markets: Creating the Right Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 662-667.
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    Cited by:

    1. Bulut, Harun & Collins, Keith J., 2013. "Political Economy of Crop Insurance Risk Subsidies under Imperfect Information," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150577, Agricultural and Applied Economics Association.

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    Keywords

    Risk and Uncertainty;

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