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Spatial Pattern of Yield Distributions: Implications for Crop Insurance
Author(s) -
Annan Francis,
Tack Jesse,
Harri Ardian,
Coble Keith
Publication year - 2014
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aat085
Subject(s) - crop insurance , pooling , sample (material) , econometrics , actuarial science , risk pool , uncorrelated , yield (engineering) , independence (probability theory) , statistics , economics , agricultural science , insurance policy , environmental science , mathematics , computer science , geography , agriculture , general insurance , artificial intelligence , chemistry , materials science , archaeology , chromatography , metallurgy
Crop insurance is similar to flood and hurricane insurance in that spatially correlated weather tends to cause violations of the independence assumption. Ideally, one would seek to pool uncorrelated risk drawn from the same distribution in crop insurance. This article proposes a testing procedure for the cross‐sectional pooling of group units, and empirically analyzes whether the proposed test improves out‐of‐sample rating performance. We utilize a balanced panel of U.S. county‐level corn yields for 510 counties, and the results of an out‐of‐sample crop insurance rating performance exercise provide economic significance to the proposed pooling methodology and results.