Premium
Constrained Efficient Contracts for Area Yield Crop Insurance
Author(s) -
Vercammen James A.
Publication year - 2000
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 - 10.1111/0002-9092.00086
Subject(s) - yield (engineering) , payment , crop insurance , constraint (computer aided design) , lump sum , value (mathematics) , business , actuarial science , economics , agriculture , finance , mathematics , statistics , ecology , materials science , geometry , biology , metallurgy
With area yield crop insurance, indemnification occurs when area yield falls below a yield trigger that is chosen by the producer. The maximum value for this yield trigger is generally restricted (e.g., 80% of the long term area average yield). The impact of this trigger constraint on the optimal design of an area yield insurance contract is examined. Within the constrained efficient contract, indemnities consist of both a lump sum payment and a payment that is proportional to the yield shortfall. Because lump sum payments may not be feasible to implement, efficiency‐enhancing modifications to standard contracts are also proposed.