Modeling farmer participation to a revenue insurance scheme by means of Positive Mathematical Programming

European farmers face increasing income uncertainty and the debate is growing on the role of insurance schemes and of public support in this field. This debate is further stimulated by the perspective of introducing instruments to cope with risk also in the Common Agricultural Policy. Therefore, there is a need for empirical analysis and tools aimed at providing empirical evidences on this subject. This paper applies a PMP modelling approach that takes into explicit consideration risk aversion behaviour to test the possibility to use it to assess the implications of participating in a insurance scheme. This is done by introducing a revenue insurance scheme into a model developed on a small group of crop farms in Italy. In particular, a quadratic mix integer programming approach has been developed in order to model the choice of participating or not in the proposed insurance scheme. The model has been than used to conduct simulations considering changes in the level of the insurance premium. The paper tries to assess the soundness of the proposed approach and to identify its limitations. The obtained results suggest that this could be a useful tool to investigate the impact of participating in insurance schemes on production patterns and farm profitability and the role of public support in this field.

Issue Date:
Sep 02 2011
Publication Type:
Conference Paper/ Presentation
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JEL Codes:
Q12; C61; Q18

 Record created 2017-04-01, last modified 2020-10-28

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