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Optimal Coverage Level Choice with Individual and Area Plans of Insurance

Author

Listed:
  • Bulut, Harun
  • Collins, Keith J.
  • Zacharias, Thomas P.

Abstract

We theoretically examine a farmer’s coverage demand with area and individual insurance plans as either separate or integrated options. The individual and area losses are assumed to be imperfectly and positively correlated. With actuarially fair rates, the farmer will fully insure with the individual plan and demand no area insurance regardless of the plans being separate or integrated. Under separate plans, free area insurance and the fair rate for individual insurance, area insurance replaces a portion of individual insurance demand. Under integrated plans, free area insurance, and the fair rate for individual insurance, the farmer will over-insure with individual plan and demand additional area insurance.

Suggested Citation

  • Bulut, Harun & Collins, Keith J. & Zacharias, Thomas P., 2011. "Optimal Coverage Level Choice with Individual and Area Plans of Insurance," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 103185, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea11:103185
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    File URL: http://purl.umn.edu/103185
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    References listed on IDEAS

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    1. Craig A. Gallet & John A. List, 2003. "Cigarette demand: a meta-analysis of elasticities," Health Economics, John Wiley & Sons, Ltd., vol. 12(10), pages 821-835.
    2. John List & Craig Gallet, 2001. "What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 20(3), pages 241-254, November.
    3. Blumenschein, Karen & Johannesson, Magnus & Blomquist, Glenn C. & Liljas, Bengt & O'Conor, Richard M., 1997. "Hypothetical versus real payments in Vickrey auctions," Economics Letters, Elsevier, vol. 56(2), pages 177-180, October.
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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.

    More about this item

    Keywords

    Agricultural risk; area plans of insurance; crop insurance; Agricultural and Food Policy; Agricultural Finance; Crop Production/Industries; Demand and Price Analysis; Farm Management; Financial Economics; Industrial Organization; Marketing; Production Economics; Research Methods/ Statistical Methods; Risk and Uncertainty; D81; G22; Q12; Q18;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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