Almost Ideal Area Yield Crop Insurance Constracts

Vincent H. Smith, Hayley H. Chouinard and Alan E. Baquet
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Vincent H. Smith: Montana State University
Hayley H. Chouinard: Montana State University
Alan E. Baquet: Montana State University

Agricultural and Resource Economics Review, 1994, vol. 23, issue 1, pages 75-83

Abstract: Using yield data for a sample of 123 dryhmd wheat producers in Montana, the effects of three area yield contracts, including the contract currently offered by the United States Federal Crop Insurance Corporation and two individual yield contracts on individual farm yield variability, are examined. The results indicate that while the Federal Crop Insurance Corporation area yield contract provides all farmers in the sample with some protection against yield variability, a simpler, actuarially equivalent “almost ideal” area yield contract provides substantially larger reductions in yield variability. However, actuarially equivalent individual yield contracts provide levels of protection against yield variability similar to those obtained under the “almost ideal” area yield contract at much lower premiums.

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