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Input Demand Under Yield and Revenue Insurance

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  • Babcock, Bruce A.
  • Hennessy, David A.

Abstract

Previous studies disagree on the effects of insurance on fertilizer application rates. The effect of increased fertilizer on the probability of low yields primarily determines whether fertilizer and insurance are substitutes or complements. The authors estimate conditional distributions of corn yields to determine if the technical relationship between yields and fertilizer supports the hypothesis that insurance increases optimal application rates. Their results indicate no support for this hypothesis. At all nitrogen fertilizer rates and reasonable levels of risk aversion, nitrogen fertilizer and insurance are substitutes, suggesting that those who purchase insurance are likely to decrease nitrogen fertilizer applications.

Suggested Citation

  • Babcock, Bruce A. & Hennessy, David A., 1996. "Input Demand Under Yield and Revenue Insurance," Staff General Research Papers Archive 794, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:794
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    References listed on IDEAS

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    1. Babcock, Bruce A. & Choi, E. Kwan & Feinerman, Eli, 1993. "Risk And Probability Premiums For Cara Utility Functions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July.
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    8. Babcock, Bruce A. & Blackmer, Alfred M., 1992. "The Value Of Reducing Temporal Input Nonuniformities," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(02), December.
    9. John K. Horowitz & Erik Lichtenberg, 1993. "Insurance, Moral Hazard, and Chemical Use in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 926-935.
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    11. Erik Lichtenberg & David Zilberman, 1986. "The Econometrics of Damage Control: Why Specification Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 261-273.
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    13. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
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