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Premium Estimation Inaccuracy and the Actuarial Performance of the US Crop Insurance Program

Author

Listed:
  • Ramirez, Octavio A.
  • Carpio, Carlos E.
Abstract
This article explores the impact of the likely levels of inaccuracy associated with two main types of premium estimation methods, under different sample sizes, on the actuarial performance of the US crop insurance program. The analyses are conducted under several plausible assumptions about the insurer versus the producers’ estimates for their actuarially fair premiums. Significant differences are found due to estimation method and sample size, with the currently used procedures resulting in the worse actuarial performance. Several conclusions and recommendations are provided that could markedly reduce the amount of public subsidies needed to keep this program solvent.

Suggested Citation

  • Ramirez, Octavio A. & Carpio, Carlos E., 2011. "Premium Estimation Inaccuracy and the Actuarial Performance of the US Crop Insurance Program," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania 102463, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea11:102463
    DOI: 10.22004/ag.econ.102463
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    5. Ramirez, Octavio A. & Carpio, Carlos E. & Rejesus, Roderick M., 2011. "Can Crop Insurance Premiums Be Reliably Estimated?," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 40(1), pages 1-14, April.
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    16. Alan P. Ker, 2001. "Private Insurance Company Involvement in the U.S. Crop Insurance Program," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 49(4), pages 557-566, December.
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    Cited by:

    1. Awondo, Sebastain Nde & Datta, Gauri S. & Ramirez, Octavio A. & Fonsah, Esendugue Greg, 2012. "Estimation of crop yield distribution and Insurance Premium using Shrinkage Estimator: A Hierarchical Bayes and Small Area Estimation Approach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 126778, Agricultural and Applied Economics Association.
    2. Ramirez, Octavio A. & Carpio, Carlos E. & Collart, Alba J., 2014. "Producer Welfare Implications of the RMA’s “Shrinkage” Crop Insurance Premium Estimator," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 168367, Agricultural and Applied Economics Association.
    3. Ramirez, Octavio A. & Carpio, Carlos E., 2015. "Are the Federal Crop Insurance Subsidies Equitably Distributed? Evidence from a Monte Carlo Simulation Analysis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(3), pages 1-19, September.
    4. Gregory Colson & Octavio A. Ramirez & Shengfei Fu, 2014. "Crop Insurance Savings Accounts: A Viable Alternative to Crop Insurance?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 36(3), pages 527-545.
    5. Matthew Stuart & Cindy Yu & David A. Hennessy, 2023. "The Impact of Stocks on Correlations between Crop Yields and Prices and on Revenue Insurance Premiums using Semiparametric Quantile Regression," Papers 2308.11805, arXiv.org, revised Jun 2024.
    6. Zaura Fadhliani & Jeff Luckstead & Eric J. Wailes, 2019. "The impacts of multiperil crop insurance on Indonesian rice farmers and production," Agricultural Economics, International Association of Agricultural Economists, vol. 50(1), pages 15-26, January.
    7. Hong Fu & Yuehua Zhang & Yinuo An & Li Zhou & Yanling Peng & Rong Kong & Calum G. Turvey, 2022. "Subjective and objective risk perceptions and the willingness to pay for agricultural insurance: evidence from an in-the-field choice experiment in rural China," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 47(1), pages 98-121, March.

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