Hedging price risk in the presence of crop yield and revenue insurance

Olivier Mahul

European Review of Agricultural Economics, 2003, vol. 30, issue 2, 217-239

Abstract: The demand for hedging against price uncertainty in the presence of crop yield and revenue insurance contracts is examined for French wheat farms. The rationale for the use of options in addition to futures is first highlighted through the characterisation of the first-best hedging strategy in the expected utility framework. It is then illustrated using numerical simulations. Futures and crop yield insurance are shown to be complements, whereas futures and crop revenue insurance are substitutes. The presence of options induces the insured producer to adopt a more speculative position on the futures market. Futures and options would improve the producer's welfare, in terms of willingness to receive. Copyright 2003, Oxford University Press.

Date: 2003
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European Review of Agricultural Economics is currently edited by Timothy Richards, Salvatore Di Falco, Céline Nauges and Vincenzina Caputo

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