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Developing Experience‐Based Premium Rate Discounts in Crop Insurance
Author(s) -
Rejesus Roderick M.,
Coble Keith H.,
Knight Thomas O.,
Jin Yufei
Publication year - 2006
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/j.1467-8276.2006.00867.x
Subject(s) - crop insurance , moral hazard , adverse selection , incentive , actuarial science , price premium , economics , business , willingness to pay , agriculture , microeconomics , ecology , biology
This article addresses the feasibility of implementing an experience‐based premium rate discount system in crop insurance. While adverse selection and moral hazard in crop insurance have been extensively studied in the past, discount systems or bonus‐malus incentives have not, to our knowledge, been investigated. Our empirical analysis indicates that a crop insurance discount system could be implemented based on a measure of favorable past insurance experience. The estimated average discounts based on the rating methods developed in this study ranged from 5% to 9% (depending on the crop being considered).