Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets

10 Pages Posted: 25 Mar 2020

See all articles by Mario Miranda

Mario Miranda

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics

Joseph W. Glauber

Government of the United States of America - Office of Economics

Date Written: February 1997

Abstract

Without affordable reinsurance, private crop insurance markets are doomed to fail because systemic weather effects induce high correlation among farm‐level yields, defeating insurer efforts to pool risks across farms. Using an empirical model of the U.S. crop insurance market, we find that U.S. crop insurer portfolios are twenty to fifty times riskier than they would be otherwise if yields were stochastically independent across farms. We also find that area yield reinsurance contracts would enable crop insurers to cover most of their systemic crop loss risk, reducing their risk exposure to levels typically experienced by more conventional property liability insurers.

Keywords: crop insurance, systemic risk, market failure, G220, Q140

Suggested Citation

Miranda, Mario and Glauber, Joseph W., Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets (February 1997). American Journal of Agricultural Economics, Vol. 79, Issue 1, pp. 206-215, 1997, Available at SSRN: https://ssrn.com/abstract=3560485 or http://dx.doi.org/10.2307/1243954

Mario Miranda (Contact Author)

Ohio State University (OSU) - Department of Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Columbus, OH 43210-1067
United States

Joseph W. Glauber

Government of the United States of America - Office of Economics

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