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Designing Optimal Crop Revenue Insurance
Author(s) -
Mahul Olivier,
Wright Brian D.
Publication year - 2003
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 - 10.1111/1467-8276.00457
Subject(s) - indemnity , crop insurance , revenue , yield (engineering) , context (archaeology) , futures contract , economics , insurance policy , actuarial science , auto insurance risk selection , schedule , business , microeconomics , key person insurance , finance , agriculture , ecology , paleontology , materials science , management , metallurgy , biology
When the indemnity schedule is contingent on the farmer's price and individual yield, an optimal crop revenue insurance contract depends only on the farmer's gross revenue. However, this design is not efficient if, as is the case with available contracts, the coverage function is based on imperfect estimators of individual yield and/or price. The producer's degree of prudence and the extent of basis risks have important influences on the optimal indemnity schedule. In this broader context, optimal protection is not provided by available U.S. crop insurance contracts and may include combinations of revenue insurance, yield insurance, futures, and options contracts.