A Study on the Determination of Base Price for Crop Revenue Insurance

Yejun Choi

Journal of Rural Development/Nongchon-Gyeongje, 2015, vol. 38, issue 4

Abstract: Although crop revenue insurance has an advantage of ensuring farm revenue more stably compared with crop yield insurance, it is not easy to determine a base price on which the guaranteed revenue is determined. During two table top exercises from 2013 to 2014, the government applied common year price(historical average of market prices) for the base price. However, the common year price has a limitation of not reflecting the current market situation and raising an adverse selection problem. To determine more appropriate base price, this study compares three base price candidates; common year price, predicted price based on the supply and demand model, and theoretical future price. The result shows that the two predicted prices, common year price and the predicted price based on the supply and demand model are similar to actual prices. Even though the predicted price based on the model is more accurately predicted than common year price, the gap is not significantly large. Therefore, considering the objectivity security and ensuring common year revenue, the common year price is concluded to be the most reasonable as base price. The predicted price from the model could be considered as a reference for calculating insurance premium more accurately.

Keywords: Demand; and; Price; Analysis (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:ags:jordng:330678

DOI: 10.22004/ag.econ.330678

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