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Crop Yield and Revenue Insurance: Choosing Between Policies That Trigger On Farm vs. County Indexes

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  • Chaffin, Ben

Abstract

Insurance policies that trigger on county yield and revenue indexes are expected to be more actuarially fair than policies that trigger on individual farm yield and revenue since individual farm hidden actions and hidden information impacting purchase decisions will be built into insurance premium rates. Findings are expected to help farmers, insurance agents, lenders, and those in academia better understand and evaluate insurance policies that trigger indemnity payments based on county indexes. Case studies are provided to facilitate understanding of tracking between farm and county yields and the importance of the farm-county yield correlation. A protocol is developed to standardize county and farm yields to better illustrate tracking and rules-of- thumb are developed to aid in crop insurance purchase decisions. Cumulative probability distributions of net yields with and without insurance are used to show the effects of county and farm trigger insurance policies on risk transfer. The farm location and spatial diversification in a county result in variations in the farm-county yield correlations and yield basis risk. These measures are directly related to the risk transfer performance of county trigger policies relative to no insurance and to farm trigger insurance policies.

Suggested Citation

  • Chaffin, Ben, 2009. "Crop Yield and Revenue Insurance: Choosing Between Policies That Trigger On Farm vs. County Indexes," Graduate Research Master's Degree Plan B Papers 48303, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    • Handle: RePEc:ags:midagr:48303
    DOI: 10.22004/ag.econ.48303
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    References listed on IDEAS

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