The Effects of Crop Yield Insurance Designs on Farmer Participation and Welfare
15 Pages Posted: 27 Mar 2020
Date Written: November 1998
The performance of individual farm yield and area yield crop insurance programs is evaluated for a representative Iowa corn farm using numerical optimization of expected utility and simulation techniques. Several different contract design features are studied, including the nature of the yield index which triggers insurance payouts, alternative restrictions on coverage levels, and alternative pricing structures. Performance is evaluated in terms of impacts on farmer participation and welfare and is examined in a portfolio setting where futures and options are also available to farmers. The relative performance of different crop insurance designs is found to be particularly sensitive to restrictions on coverage levels, the size of premium loadings, and the degree to which individual farm yields are correlated with area yields.
Keywords: crop insurance, hedging, portfolio selection, producer welfare, risk management, Q140
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