 CROP INSURANCE: THE RELATIONSHIP BETWEEN INDEMNITY PRICE AND EXPECTED OUTPUT PRICECharles E. Hyde Journal of Agricultural Economics, 1996, vol. 47, issue 1‐4, 236-246 Abstract: Crop insurance contracts typically constrain the choice of price at which indemnification occurs to be less than the expected output price. This restriction is first analysed assuming only risk‐averse farmers, and yield and price uncertainty. General conditions under which the optimal price selection is bounded above by the expected output price are found to be difficult to derive. The results of numerical simulations based on a range of different utility functional forms are presented, and a strong tendency is observed for the optimal price selection to be bounded from below by the expected output price. The effect of increasing output price variability on the optimal price selection is also considered. The simulation results suggest that the optimal price selection is often non‐increasing with a mean‐preserving spread of the output price distribution. Lastly, it is noted that even in the presence of hidden‐action moral hazard, if the incentives for shirking are not too high, the constraint that price selections be lower than the expected output price may still be binding. Date: 1996 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jageco:v:47:y:1996:i:1-4:p:236-246 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Agricultural Economics is currently edited by David Harvey More articles in Journal of Agricultural Economics from Wiley Blackwell |
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