Empirically Evaluating the Flexibility of the Johnson Family of Distributions: A Crop Insurance Application

Yue Lu, Octavio A. Ramirez, Roderick M. Rejesus, Thomas O. Knight and Bruce J. Sherrick

Agricultural and Resource Economics Review, 2008, vol. 37, issue 1

Abstract: This article examines the flexibility of the Johnson system of distributions by assessing its per-formance in terms of modeling crop yields for the purpose of setting actuarially fair crop in-surance premiums. Using data from corn farms in Illinois coupled with Monte Carlo simula-tion procedures, we found that average crop insurance premiums computed on the basis of the Johnson system provide reasonably accurate estimates even when the data are normal or come from a non-normal distribution other than the Johnson system (i.e., a beta). These results sug-gest that there is potential for using the Johnson system to rate previously uninsured crops that do not have historical insurance performance data upon which to base premium calculations.

Keywords: crop insurance; crop yield modeling; Johnson distribution; premium rate setting; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:ags:arerjl:44740

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