The Effects of Crop Yield Insurance Designs on Farmer Participation and Welfare

15 Pages Posted: 27 Mar 2020

See all articles by H. Holly Wang

H. Holly Wang

Purdue University - Department of Agricultural Economics

Steven D. Hanson

Michigan State University - Department of Agricultural Economics

Robert J. Myers

Michigan State University - Department of Agricultural Economics

J. Roy Black

Michigan State University

Date Written: November 1998

Abstract

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

Suggested Citation

Wang, H. Holly and Hanson, Steven D. and Myers, Robert J. and Black, J. Roy, The Effects of Crop Yield Insurance Designs on Farmer Participation and Welfare (November 1998). American Journal of Agricultural Economics, Vol. 80, Issue 4, pp. 806-820, 1998. Available at SSRN: https://ssrn.com/abstract=3561802 or http://dx.doi.org/10.2307/1244065

H. Holly Wang (Contact Author)

Purdue University - Department of Agricultural Economics

West Lafayette, IN 47907-1145
United States

Steven D. Hanson

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States
517-353-1870 (Phone)
517-432-1800 (Fax)

Robert J. Myers

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States
517-432-3649 (Phone)

J. Roy Black

Michigan State University

Agriculture Hall
East Lansing, MI 48824-1122
United States

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