Producer Welfare Benefits of Rating Area Yield Crop Insurance

Azadeh Falsafian (), Mohammad Ghahremanzadeh, Taravat Aref Eshghi, Vali Rasooli Sharabiani, Mariusz Szymanek () and Agata Dziwulska-Hunek
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Azadeh Falsafian: Department of Agricultural Management, Tabriz Branch, Islamic Azad University, Tabriz 51579-44533, Iran
Mohammad Ghahremanzadeh: Department of Agricultural Economics, Faculty of Agriculture, University of Tabriz, Tabriz 51666-16471, Iran
Taravat Aref Eshghi: Department of Agricultural Economics, Faculty of Agricultural Sciences, University of Guilan, Rasht 41996-13776, Iran
Vali Rasooli Sharabiani: Department of Biosystems Engineering, University of Mohaghegh Ardabili, Ardabil 56199-11367, Iran
Mariusz Szymanek: Department of Agricultural, Forest and Transport Machinery, University of Life Sciences in Lublin, Głęboka 28, 20-612 Lublin, Poland
Agata Dziwulska-Hunek: Department of Biophysics, University of Life Sciences in Lublin, Głęboka 28, 20-612 Lublin, Poland

Agriculture, 2024, vol. 14, issue 9, 1-21

Abstract: Index-based insurance is an innovative concept for evaluating agricultural risks and payouts, which uses an index instead of traditional on-site loss assessment. Area yield insurance, as an index-based approach, is an effective strategy to mitigate moral hazard and adverse selection issues. This study aims to develop area yield insurance as a new insurance plan in Iran for two major crops: wheat and barley. It utilized kernel and joint kernel distributions to price the insurance and assessed producer welfare benefits by comparing the certainty equivalence (CE) of farmers’ utility with and without the policy. Data were collected from East Azerbaijan Province, including county-level yield data for irrigated and rainfed wheat and barley from 1975 to 2019 and 446 individual-level yield data from 2015 to 2019. A two-stage method was used to model yield risk: the first stage fits a trend model, while the second estimates the yield distributions with the detrended data. The results showed a significant difference in premiums calculated by the two distributions, with joint kernel distribution offering the best empirical fit and reasonable premiums. The findings indicate that area yield crop insurance provides positive welfare benefits and should serve as a viable alternative or complement to existing yield insurance plans. The successful implementation of this policy in various countries suggests it can be a suitable risk management program for developing countries like Iran.

Keywords: crop insurance; certainty equivalent; joint kernel distribution; premium; welfare (search for similar items in EconPapers)
JEL-codes: Q1 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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