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El Ni˜no Southern Oscillation Impacts on Crop Insurance

Listed author(s):
  • Tack, Jesse B.
  • Ubilava, David

Predictive models of climatic phenomena can aid in insurance program design and decision making. Extreme weather outcomes have been linked to the El Niño Southern Oscillation (ENSO), which globally impacts agricultural production. This study demonstrates that extreme ENSO events alter cotton yield distributions in the Southeastern United States. These impacts translate into economically meaningful effects on crop insurance premium rates. Commercial insurers can use publicly available information to determine if government-set premium rates are mispriced, and in turn extract economic rents via the federally mandated Standard Reinsurance Agreement. By ceding underpriced policies in El Niño and La Niña years, we find that private insurance companies can reduce paid indemnities by 10–15% on average.

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Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 151429.

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Date of creation: Jun 2013
Handle: RePEc:ags:aaea13:151429
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