Performance of Farm Level Vs Area Level Crop Insurance

This study investigated the performance of Actual Production History (APH), a farm level crop insurance plan, vis- a-vis Area Yield Production (AYP), an area level crop insurance, as a farm risk management tool. We estimated actuarially fair premiums and trigger probabilities under both plans using a two-step hierarchical Bayes small area estimator. Certainty equivalent revenues based on a risk averse utility function were derived under three insurance choice scenario (APH, AYP, no insurance) with and without actual Federal subsidies. Finally, we derived the performance of each alternative plan with regards to the other following a pair-wise comparison of certainty equivalent revenues. Results suggest that unobserved factors other than basis risk and farmers risk preference drive preferences for crop insurance contracts. Acknowledgement :

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Conference Paper/ Presentation
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JEL Codes:
Q14; C11

 Record created 2018-10-02, last modified 2020-10-28

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