Using a Farmer's Beta for Improved Estimation of Expected Yields

Miguel Carriquiry, Bruce Babcock and Chad Hart

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: Effects of sampling error in estimation of farmers’ mean yields for crop insurance purposes and their implications for actuarial soundness are explored using farm-level corn yield data in Iowa. Results indicate that sampling error, combined with nonlinearities in the indemnity function, leads to empirically estimated insurance rates that exceed actuarially fair values. The difference depends on the coverage level, the number of observations used, and the participation strategy followed by farmers. A new estimator for mean yields based on the decomposition of farm yields into systemic and idiosyncratic components is proposed, which could lead to improved rate-making and reduce adverse selection.

Keywords: adverse selection; actual production history; APH; crop insurance; mean yields estimation; sampling error (search for similar items in EconPapers)
Date: 2008-04-01
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (6)

Published in Journal of Agricultural and Resource Economics, April 2008, vol. 33 no. 1, pp. 52-68

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Journal Article: Using a Farmer's Beta for Improved Estimation of Expected Yields (2008)
Working Paper: Using a Farmer's Beta for Improved Estimation of Expected Yields (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:12937

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