Optimal Area-Yield Crop Insurance Reconsidered

The implementability of area-yield insurance contracts in the presence of symmetric and asymmetric information about the farmer's "beta" linking his yield to the risk-pool's yield is examined. In the presence of fixed costs and symmetric information Mahul's result that optim...

Full description

Saved in:
Bibliographic Details
Published in:American journal of agricultural economics 2003-08, Vol.85 (3), p.590-604
Main Authors: Bourgeon, Jean-Marc, Chambers, Robert G.
Format: Article
Language:English
Subjects:
Adverse selection
Agricultural economics
Agricultural production
Agriculture
area-yield insurance
asymmetric information
Costs
Crop insurance
Crops
Economics
Economics and Finance
Expected utility
Farmers
Farming
G220
Humanities and Social Sciences
Indemnity
Indemnity insurance
Information asymmetry
Insurance
Insurance companies
Insurance pools
Insurance premiums
Insurance providers
Q140
Reinsurance
Risk
Risk aversion
Systemic risk
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:The implementability of area-yield insurance contracts in the presence of symmetric and asymmetric information about the farmer's "beta" linking his yield to the risk-pool's yield is examined. In the presence of fixed costs and symmetric information Mahul's result that optimality requires setting the slope of the indemnity schedule equal to each farmer's beta is confirmed. When there is asymmetric information between the insurer and the farmer, however, this full-insurance contract is vulnerable to adverse selection, and therefore may not be implementable for general cost structures. The optimal area-yield insurance contract under asymmetric information is characterized.
ISSN:0002-9092
1467-8276
DOI:10.1111/1467-8276.00458