Farmers make their production decisions in an environment characterized by multiple uncertainty. Protective activities do not always provide an efficient protection against weather-related causes of loss. Agricultural revenues are all the more exposed to uncertain losses as the specialization of agricultural production has reduced the opportunities of risk pooling. Insurance contributes to transferring these risks through individuals who are best to bear them. Nevertheless, historical experience strongly suggests that markets for crop insurance would fail without government financial support, which is either direct by creating an indemnification fund for agricultural disasters like in France or indirect by reinsuring private companies like in the United States. In recent years, numerous studies have showed that informational asymmetries and systemic risk are the main obstacles to the development of an independent crop insurance industry. In addition, the emergence of new sources of risks, like output price uncertainty, may contribute to increasing the variability of agricultural revenues. The purpose of this paper is twofold. First, alternative crop insurance programs in which the indemnity payments are based on variables exogenous to the individual farm and are observable by both parties are explored. These schemes allow the insurers to essentially eliminate asymmetric information problems. Nevertheless, the absence of risk pooling among insurance companies caused by the systemic component of agricultural risks leaves open the possibility that financial markets develop new hedging tools for insurance industry. Second, since governments lower funding for price support programs, the efficiency of crop insurance schemes to stabilize crop revenues lowers. Therefore, the role of revenue insurance as an efficient tool to protect farmers against reductions in gross income from insurable reductions in yield and/or price is examined. Since the French indemnification program against agricultural disasters turns out to be less and less efficient in this changing economic environment, a new definition of the insurance market’s role and the active participation of the financial market should improve the management of agricultural risks.


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