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Abstract
The paper evaluates technical solutions and two main tapes of index-based insurance:
area yield insurance and weather-based index insurance regarding their
efficiency in reducing climatic risks of Russian farms in the steppes zone. The
analysis considers area yield insurance at two levels of aggregation - oblast and
rayon (county) level. Weather-based index insurance products are drawn up by
combining two weather parameters - daily precipitation and daily average air
temperature. We employ yield and weather data of an experimental station in the
Central Volga Russia for the period from 1979 to 2000. In addition experts' assessments
are used to specify alternative levels of production technology and
respective yield distributions for the considered region. To assess utilityefficiency
of the defined insurance products a programming model were formulated
for 22 states of nature and 3 levels of the decision-maker risk aversion. The
model estimation results show that area yield insurance based on oblast and
rayon yields stabilize farm income mostly efficiently. The weather-based index
insurance follows immediately after. So, both index-based insurance types provide
the considered farm with a higher utility than farm yield insurance with deductibles.
This points at a high potential of index-based insurance as an instrument
reducing climatic risk of Russian farms situated in the steppes zone.