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Evaluating the Potential of Index Insurance Schemes to Reduce Crop Yield Risk in an Arid Region
Author(s) -
Breustedt Gunnar,
Bokusheva Raushan,
Heidelbach Olaf
Publication year - 2008
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.2007.00152.x
Subject(s) - crop insurance , index (typography) , yield (engineering) , stochastic dominance , bootstrapping (finance) , basis risk , dominance (genetics) , insurance policy , risk management , economics , actuarial science , agricultural economics , statistics , econometrics , mathematics , agriculture , geography , computer science , finance , chemistry , materials science , archaeology , capital asset pricing model , world wide web , metallurgy , gene , biochemistry
We evaluate yield risk reduction through weather index, area yield index and farm yield insurance contracts for wheat farms in Kazakhstan by employing data from 1980 to 2002. We use the usual mean variance (MV) approach and also a second‐degree stochastic dominance (SSD) criterion. While MV is not necessarily consistent with the expected utility (EU) theory, SSD results only in a minimum but EU‐consistent benefit from insuring. Differences in the estimation results for both approaches underline the advantage of applying both criteria to analyse the risk‐reducing potential of crop insurance. Bootstrapping results show that none of the analysed insurance schemes provides statistically significant risk reduction for every single farm. In addition, weather‐based index insurance is found to provide less risk reduction than area yield insurance based on the rayon (county) yield. Moreover, rayon yield index insurance can reduce yield risk more effectively for Kazakhstan's wheat producers than farm yield insurance with a low strike yield.