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Small Area Estimation of Insurance Premiums and Basis Risk

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  • Awondo, Sebastain Nde
  • Datta, Gauri S.
  • Ramirez, Octavio A.
  • Fonsah, Esendugue Greg

Abstract

The magnitude of basis risk between Actual Production History (APH) and Group Risk Plan (GRP) contracts across corn farms in Illinois counties is estimated using pseudo-simulated yields with farm specific geospatial climate data. A two-step hierarchical Bayes small area estimator was used to address problems related to lack of representative sample, aggrega- tion bias, properly accounting for spatial and temporal heterogeneity and uncertainty in parameter estimates. We found wide variation in expected basis risk across farms within and between counties. Expected basis risk was found to sharply increase under APH plans with higher coverage levels.

Suggested Citation

  • Awondo, Sebastain Nde & Datta, Gauri S. & Ramirez, Octavio A. & Fonsah, Esendugue Greg, 2013. "Small Area Estimation of Insurance Premiums and Basis Risk," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 143109, Southern Agricultural Economics Association.
  • Handle: RePEc:ags:saea13:143109
    DOI: 10.22004/ag.econ.143109
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    Keywords

    Agricultural Finance; Research Methods/ Statistical Methods;

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