Constrained Efficient Contracts for Area Yield Crop Insurance

James A. Vercammen

American Journal of Agricultural Economics, 2000, vol. 82, issue 4, 856-864

Abstract: With area yield crop insurance, indemnification occurs when area yield falls below a yield trigger that is chosen by the producer. The maximum value for this yield trigger is generally restricted (e.g., 80% of the long term area average yield). The impact of this trigger constraint on the optimal design of an area yield insurance contract is examined. Within the constrained efficient contract, indemnities consist of both a lump sum payment and a payment that is proportional to the yield shortfall. Because lump sum payments may not be feasible to implement, efficiency-enhancing modifications to standard contracts are also proposed. Copyright 2000, Oxford University Press.

Date: 2000
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American Journal of Agricultural Economics is currently edited by Madhu Khanna, Brian E. Roe, James Vercammen and JunJie Wu

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