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Equity and efficiency considerations in area versus individual yield insurance
Author(s) -
Turvey Calum G.,
Islam Zahirul
Publication year - 1995
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.1995.tb00348.x
Subject(s) - crop insurance , equity (law) , yield (engineering) , adverse selection , actuarial science , economics , insurance policy , business , agriculture , geography , materials science , archaeology , political science , law , metallurgy
Equity and efficiency considerations in area versus individual crop insurance are investigated for 609 Ontario cash crop farms. Results show that the relationship between individual and area premiums and risk reduction are explained by systematic and non‐systematic yield risk relationships. On average, area insurance premiums are much lower than individual yield insurance premiums, and in terms of efficiency in risk‐reduction individual plans are superior to area plans. As it turns out arguments of asymmetric information which has lead some researchers to investigate area vs. individual yield insurance is not totally resolved. Inequities in the benefits of area plans across farmers are not equitably distributed, favouring high‐risk producers. Adverse selection causes instability in the pooled contracts which will ultimately cause area insurance plans to fail.