Econometric Identification of Crop Insurance Participation

Francis Tsiboe and Dylan Turner

Agricultural and Resource Economics Review, 2023, vol. 52, issue 3

Abstract: This paper shows how econometric identification can be improved in studies making use of crop insurance participation as either an independent or dependent variable. The paper provides the reader with a succinct overview of how crop insurance contracts are priced and how to use publicly available data to derive a novel composite crop insurance design parameter that emulates existing crop insurance rating parameters using a procedure that is based on current actuarial practices. The derived design parameter performs well at predicting historic crop insurance loss-cost ratios and satisfies the requirements for an instrumental variable for a variety of empirical applications related to crop insurance. Representative empirical examples are presented where it is shown that the proposed instrument has favorable two-staged least squares diagnostic tests and is effective at eliminating endogeneity bias.

Keywords: Agricultural and Food Policy; Agricultural Finance; Crop Production/Industries; Demand and Price Analysis; Farm Management; Research Research Methods/Statistical Methods; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ags:arerjl:358603

DOI: 10.22004/ag.econ.358603

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