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Contracting in the Presence of Insurance: A Case of Bioenergy Crop Production

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  • Anand, Mohit
  • Miao, Ruiqing
  • Khanna, Madhu

Abstract

This paper investigates the interaction of crop insurance and contracts in improving the risk management of farmers who produce bioenergy crops. Numerical simulation is conducted for 1,919 U.S. counties east of the 100th Meridian that have yield data for corn and for at least one bioenergy crop yield of miscanthus and switchgrass. County-level yield data, both on low quality land and high quality land, are simulated by using DayCent model, and Copula approach is used to estimate a joint yield-price distribution for each county. We model a representative farmers’ optimal choice problem of whether to use their land to grow conventional crops or to use their land for production of bioenergy crops under one of three different contract choices offered by the biorefinery. The terms of these contracts are determined in such a manner that they jointly maximize the net benefits of the refinery and farmers. We do this joint optimization in two scenarios: ‘With insurance’ and ‘Without insurance’ for bioenergy crops to see how presence of crop insurance for bioenergy crops will affect the optimal contract design and will affect land allocation under a certain contract type.

Suggested Citation

  • Anand, Mohit & Miao, Ruiqing & Khanna, Madhu, 2019. "Contracting in the Presence of Insurance: A Case of Bioenergy Crop Production," 2019 Annual Meeting, July 21-23, Atlanta, Georgia 303744, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea19:303744
    DOI: 10.22004/ag.econ.303744
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