Estimating the Basis Risk of Rainfall Index Insurance for Pasture, Rangeland, and Forage

Jisang Yu, Monte Vandeveer, Jerry D. Volesky and Keith Harmoney

Journal of Agricultural and Resource Economics, 2019, vol. 44, issue 01

Abstract: Using historical yield and rainfall data from three university-managed ranches in Kansas and Nebraska, we measure basis risk of Rainfall Index Insurance for Pasture, Rangeland, and Forage (PRF-RI). We investigate the relationship between forage yield and monthly precipitation and estimate the relationship between forage yield and PRF-RI indices. Finally, we estimate basis risk of PRF-RI. Our estimates suggest that using actual site-level precipitation values would reduce basis risk by only 5%–9%, indicating that basis risk stems mostly from nonprecipitation factors. Using more flexible contract forms with site-level precipitation would have little impact on decreasing the degree of basis risk.

Keywords: Crop Production/Industries; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlaare:281319

DOI: 10.22004/ag.econ.281319

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