Are actuarial crop insurance rates fair?: an analysis using a penalized bivariate B‐spline method

Michael J. Price, Cindy L. Yu, David Hennessy and Xiaodong Du

Journal of the Royal Statistical Society Series C, 2019, vol. 68, issue 5, 1207-1232

Abstract: In this paper, we investigate whether the yield insurance premium rates given by the US Department of Agriculture's Risk Management Agency are actuarially fair by comparing the conditional yield density inferred from premium data with the conditional yield density inferred from yield data. A procedure is developed to estimate the conditional yield density by using premium data through partial derivatives of the premium rate function, as fitted by penalized bivariate tensor product B‐splines. We study the asymptotic properties of partial derivatives of a penalized bivariate tensor product B‐spline estimator and provide variance estimates. The conditional yield density inferred from premium data and its variance estimator are evaluated through simulation studies. The procedure is also applied to a crop insurance data set from the state of Iowa to examine the actuarial fairness of the premium rates. On average, premium rates are close to our estimates and this is true for each coverage level. However, premiums for low productivity land are generally too low whereas those for high productivity land are generally too high. Even after subsidies, premiums for the more productive land are generally substantially higher than are our estimates of the corresponding actuarially fair rates.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/rssc.12363

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jorssc:v:68:y:2019:i:5:p:1207-1232

Ordering information: This journal article can be ordered from
http://ordering.onli ... 1111/(ISSN)1467-9876

Access Statistics for this article

Journal of the Royal Statistical Society Series C is currently edited by R. Chandler and P. W. F. Smith

More articles in Journal of the Royal Statistical Society Series C from Royal Statistical Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().