Choice between Hail Insurance and Anti-Hail Nets of Apple Producers
42 Pages Posted: 18 Jul 2019
Date Written: July 18, 2019
In this paper, we consider hail as a single source weather shock and we analyse the trade-off between anti-hail nets and insurance. We propose a simple theoretical model that is rooted into expected utility theory. After describing the basic model, we perform some comparative static analyses to identify the role of individual elements for farmers' decisions.We find that the benefit of anti-hail nets compared to insurance is an increasing function of the overall risk of hail damages, of the farmers' level of risk aversion and of the worth of the agricultural output.
Finally, we develop a simulation model using data related to apple production in South Tyrol, a Northern-Italian province with a relatively high risk of hail. The model generally confirms the results of the comparative static analysis and it shows that, in this region, anti-hail nets are often superior than insurance.
Keywords: Actuarial soundness, Agricultural insurance markets, Anti-hail nets, Hail, Expected utility
JEL Classification: Q12, Q18
Suggested Citation: Suggested Citation