nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒05‒16
thirteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Adversity and the Propensity to Fail: The Impact of Disaster Payments and Multiple Peril Crop Insurance on U.S. Farm Exit Rates By Kirwan, Barrett E.
  2. Competitive Screening in Insurance Markets with Endogenous Wealth Heterogeneity By Nick Netzer; Florian Scheuer
  3. Time-Varying Estimation of Crop Insurance Program in Altering North Dakota Farm Economic Structure By Coleman, Jane A.; Shaik, Saleem
  4. Crop Insurance, Disaster Payments, and Incentives for Land Use Change in Agriculture: A Preliminary Assessment By Carriazo, Fernando; Claassen, Roger; Cooper, Joseph
  5. Weather Risk and the Viability of Weather Insurance In Western China By Turvey, Calum G.; Kong, Rong; Belltawn, Burgen
  6. Can Crop Insurance Premiums be Reliably Estimated? By Ramirez, Octavio A.; Carpio, Carlos E.; Rejesus, Rod
  7. Livestock Gross Margin Insurance for Dairy Cattle: An Analysis of Program Performance and Cost under Alternative Policy Configurations By Cabrera, Victor E.; Gould, Brian W.; Valvekar, Mayuri
  8. A Cost Function Analysis of Crop Insurance Moral Hazard and Agricultural Chemical Use By Liang, Yan; Coble, Keith H.
  9. Impacts of the SURE Standing Disaster Assistance Program on Producer Risk Management and Crop Insurance Programs By Anderson, John D.; Barnett, Barry J.; Coble, Keith H.
  10. Institutional Ambivalence and Permanently Failing Health Care: Access by Immigrants and the Categorically Unequal in the Nation and New Jersey By Donald Light
  11. Constructing Farm Level Yield Densities from Aggregated Data: Analysis and Comparison of Approaches By Cooper, Joseph; Langemeier, Michael; Schnitkey, Gary; Zulauf, Carl
  12. Spatial and Temporal On-Farm Risk Management - Crop Production Scheduling and Index Insurance Strategies By Lin, Shanshan; Mullen, Jeffrey D.; Hoogenboom, Gerrit
  13. Natural disasters, self-insurance and human capital investment : evidence from Bangladesh, Ethiopia and Malawi By Yamauchi, Futoshi; Yohannes, Yisehac; Quisumbing, Agnes

  1. By: Kirwan, Barrett E.
    Abstract: This paper investigates the effect of government-provided crop insurance on farm failure rates. By exploiting random variation in weather and the Federal Crop Insurance Reform Act of 1994, which mandated crop insurance coverage for the first time, I employ two natural experiments that identify the causal effect of disaster relief on farm failure rates. I examine the survival smoothing contribution of crop insurance by looking at the relative effect of disaster relief across two regimes, pre- and post-1994. Prior to 1994 ad hoc, ex post disaster payments were the primary form of disaster relief. Shortly after the 1994 Act virtually all disaster relief came through crop insurance indemnities. I find that disaster relief in the form of ad hoc disaster payments slightly reduces the average farm failure rate, while average farm failure rates increase under the crop insurance regime. The relative effect suggests that farm failure rates increase by 1.7 percentage points (about 30-percent) under the crop insurance regime. Excessively generous ad hoc disaster payments and moral hazard provide possible explanations for these findings. These findings suggest that government-provided crop insurance plays an important role in farmer risk management.
    Keywords: Agricultural Finance, Farm Management, Risk and Uncertainty,
    Date: 2009
  2. By: Nick Netzer (Socioeconomic Institute, University of Zurich); Florian Scheuer (Massachusetts Institute of Technology)
    Abstract: We examine equilibria in competitive insurance markets with adverse selection when wealth differences arise endogenously from unobservable savings or labor supply decisions. The endogeneity of wealth implies that high risk individuals may ceteris paribus exhibit the lower marginal willingness to pay for insurance than low risks, a phenomenon that we refer to as irregular-crossing preferences. In our main model, both risk and patience (or productivity) are privately observable. In contrast to the models in the existing literature, where wealth heterogeneity is exogenously assumed, equilibria in our model no longer exhibit a monotone relation between risk and coverage. Individuals who purchase larger coverage are no longer higher risks, a phenomenon frequently observed in empirical studies.
    Keywords: Insurance Markets, Adverse Selection, Multidimensional Screening
    JEL: D82 G22 J22
    Date: 2009–04
  3. By: Coleman, Jane A.; Shaik, Saleem
    Abstract: This study examines how federal farm policies, specifically crop insurance, have affected the farm economic structure of North Dakotaâs agriculture sector. The system of derived input demand equations is estimated to quantify the changes in North Dakota farmersâ input use when they purchase crop insurance. Further, the cumulative rolling regression technique is applied to capture the varying effects of the farm policies over time. Empirical results from the system of input demand functions indicate that there is no moral hazard since North Dakota farmers will increase fertilizer and pesticide use in the presence of crop insurance. Results also indicate that farmers in this state will not increase the use of land.
    Keywords: Farm Management,
    Date: 2009
  4. By: Carriazo, Fernando; Claassen, Roger; Cooper, Joseph
    Keywords: Crop Insurance, Disaster Payments, Supplemental Revenue Assistance, corn, wheat, Agricultural and Food Policy, Research Methods/ Statistical Methods, Risk and Uncertainty,
    Date: 2009–04–28
  5. By: Turvey, Calum G.; Kong, Rong; Belltawn, Burgen
    Abstract: This paper presents preliminary results on the possible demand for weather insurance in China. Results from 1,564 farm households from Western and Central China between October 2007 and October 2008 suggest that the greater risk for farmers is drought followed by excessive rain. Heat is less critical as a risk but more significant than cool weather. Results suggest a strong interest in precipitation insurance with 50% and 44% of respondents indicating strong interest in the product. Supplementary results indicate that interest is equal between planting, cultivating, and harvesting. Furthermore results suggest that farmers are willing to adopt new ideas, and where possible already take action to self insure through diversification and other means, The results are encouraging. Examples and discussion of how weather insurance can be implemented is included in the text.
    Keywords: weather insurance, rainfall insurance, China, Agricultural and Food Policy, Agricultural Finance, International Development, Risk and Uncertainty,
    Date: 2009–04–30
  6. By: Ramirez, Octavio A.; Carpio, Carlos E.; Rejesus, Rod
    Abstract: The objective of this paper is to compare the accuracy of crop insurance rating methods based on historical liability and indemnity data (similar to the procedure currently used by the Risk Management Agency) and âyield distributionâ approaches. Estimated rates are compared to âtrueâ rates using empirically-grounded simulation procedures that take into account common data availability constraints. Simulation results suggest that farm and county level rate estimates using the âyield distributionâ approach are significantly more accurate than those based on historical indemnity and liability records.
    Keywords: crop insurance premiums, non-normal distributions, simulation methods, Agribusiness, Agricultural Finance, Risk and Uncertainty,
    Date: 2009–04–30
  7. By: Cabrera, Victor E.; Gould, Brian W.; Valvekar, Mayuri
    Abstract: Livestock Gross Margin insurance for dairy cattle (LGM-Dairy) is a risk management tool that can be used to insure a lower bound on a dairy producerâs gross margin. In this paper we (1) review the basic structure of LGM-Dairy (2) examine the sensitivity of Gross Margin Guarantee (GMG) and premium to changes in feeding regimes and (3) quantify impacts of changes in deductible level on important program characteristics.
    Keywords: Dairy Price Risk, Uncertainty, Livestock Insurance., Agribusiness, Farm Management, Financial Economics, Livestock Production/Industries, Production Economics, Risk and Uncertainty,
    Date: 2009
  8. By: Liang, Yan; Coble, Keith H.
    Abstract: This paper employs a cost function analysis method to investigate the existence of moral hazard in cotton buy-up insurance. The trans-log cost function estimates of the own-price elasticity of fertilizer, herbicide, and insecticide is -0.222, -0.143, and -0.121, respectively for Mississippi cotton production. Our results found statistically significant relationship between per acre direct cost and cotton buy-up insurance for year 2001 and 2005 in Mississippi. Our results also indicate that moral hazard can either decrease or increase agricultural input usage depending specific production condition in an individual year. But in general the results support effects smaller than anecdotal evidence would suggest.
    Keywords: crop insurance, moral hazard, agricultural input use, cost function analysis, cotton, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Production Economics, Risk and Uncertainty,
    Date: 2009
  9. By: Anderson, John D.; Barnett, Barry J.; Coble, Keith H.
    Abstract: This research investigates the potential effects of the row crop provisions of the standing disaster assistance program (SURE) in the 2008 Farm Bill. Results suggest little impact on producer crop insurance purchase decisions, though the program does seem to provide an incentive for mid-level coverage. Payments under the program should be expected to differ considerably across geographic regions and levels of diversification, with the program providing the greatest benefit to undiversified producers in more risky production regions.
    Keywords: crop insurance, disaster assistance, Farm Bill, SURE, Agricultural and Food Policy, Farm Management, Risk and Uncertainty, Q12, Q18,
    Date: 2009
  10. By: Donald Light (University of Medicine and Dentistry of New Jersey)
    Abstract: Immigrants seeking health care, especially those without some kind of public or private insurance, highlight the barriers to access that arose as intended or unintended barriers of how dominant stakeholders shaped American medicine. This paper draws on a new study of those consequences for immigrants and focuses on efforts by one state to increase access. Such efforts are framed and constrained by past institutional developments and the layered actions of federal, state, and sometimes county or city actions. We develop a conceptual framework based on Merton & Barber, Meyer & Zucker, Tilly, and Massey that is useful for analyzing health care and other human service programs. Categorical inequalities underlie institutional ambivalence in many programs and policies, and in efforts to reduce or increase them. These inequalities and ambivalence contribute to American health care and health insurance being permanently failing systems driven by provider and insurer moral hazard that never collapse but run inefficiently, ineffectively, and inequitably.
    Date: 2009–04
  11. By: Cooper, Joseph; Langemeier, Michael; Schnitkey, Gary; Zulauf, Carl
    Abstract: Yield variability can be significantly higher at the farm level than at more aggregated levels, including the county. However, due to a dearth of available farm level data, much stochastic analysis involving farm yields utilizes more aggregated yield data as a proxy for the farm level. We empirically evaluate farm-level variability using longitudinal farm level data sets available from the Kansas Farm Management Association and the Illinois Farm Business and Farm Management Association. For corn, soybeans, and wheat, we compare the farm level yield variability obtained from this data to that inferred from Federal crop insurance premiums. The farm management data exhibit lower yield variability than are implied by the crop insurance premiums.
    Keywords: Yield variability, crop insurance, corn, wheat, soybeans, Agricultural and Food Policy, Crop Production/Industries, Research Methods/ Statistical Methods, Risk and Uncertainty,
    Date: 2009–04–23
  12. By: Lin, Shanshan; Mullen, Jeffrey D.; Hoogenboom, Gerrit
    Abstract: An agronomic crop growth model, Decision Support System for Agro-Technology Transfer (DSSAT), is used to find optimal crop management strategies for cotton production in Mitchell, Miller, and Lee Counties in Georgia during the past 10 years. Planting date and irrigation threshold are the two variables optimized to maximize farmer's expected utility. A decreasing absolute risk aversion - constant relative risk aversion (DARA-CRRA) utility function is used to examine crop management decision that can be influenced by changes in inter-temporal risk behavior. Comparison is made from management perspective - one is dynamic crop management strategy that varies each year; one is static (constant) strategy over 10 years. Based on the best crop management strategies, index insurance products are designed to help farmers further reduce production risk. The impact of geographical basis risk was assessed by comparing the risk reduction generated from index insurance contracts based on different weather stations; the impact of temporal basis risk is assessed by allowing separate contracts to be purchased for different sub-periods during the entire period.
    Keywords: Irrigation, Planting Date, Risk Management, Weather Derivative Contract, Basis Risk, Agribusiness, Agricultural Finance, Crop Production/Industries, Farm Management, Financial Economics, Risk and Uncertainty,
    Date: 2009
  13. By: Yamauchi, Futoshi; Yohannes, Yisehac; Quisumbing, Agnes
    Abstract: This paper examines the impacts of disasters on dynamic human capital production using panel data from Bangladesh, Ethiopia, and Malawi. The empirical results show that the accumulation of biological human capital prior to disasters helps children maintain investments in the post-disaster period. Biological human capital formed in early childhood (long-term nutritional status) plays a role of insurance with resilience to disasters by protecting schooling investment and outcomes, although disasters have negative impacts on investment. In Bangladesh, children with more biological human capital are less affected by the adverse effects of floods, and the rate of investment increases with the initial human capital stock in the post-disaster recovery process. In Ethiopia and Malawi, where droughts are rather frequent, exposure to highly frequent droughts in some cases reduces schooling investment but the negative impacts are larger among children embodying less biological human capital. Asset holdings prior to the disasters, especially the household's stock of intellectual human capital, also helps maintain schooling investments at least to the same degree as the stock of human capital accumulated in children prior to the disasters.
    Keywords: Natural Disasters,Hazard Risk Management,Access to Finance,Economic Theory&Research,Health Monitoring&Evaluation
    Date: 2009–04–01

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