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Optimal Insurance Against Climatic Experience
Author(s) -
Mahul Olivier
Publication year - 2001
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 - 10.1111/0002-9092.00180
Subject(s) - actuarial science , purchasing , insurance policy , production (economics) , dependency (uml) , economics , business , microeconomics , operations management , computer science , software engineering
An optimal insurance contract against a climatic risk is derived in the presence of an uninsurable and dependent aggregate production risk. The optimaldesign depends on the stochastic dependency between both sources of uncertainty and on the producer's attitude towards risk, especially on his prudent behavior. Rationalweather insurance purchasing decisions are also derived. The prudent producer responds to actuarially fair weather insurance by increasing his exposure towards risk.