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Risk management activities of a non-industrial private forest owner with a bivariate utility function

Marielle Brunette and Stéphane Couture ()
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Stéphane Couture: Université de Toulouse, INRA

Review of Agricultural, Food and Environmental Studies, 2018, vol. 99, issue 3, 281-302

Abstract: Abstract We analyze the insurance and self-insurance choices of a private forest owner whose utility is bivariate (consumption and forest amenity value). We show that under fair premium, full insurance is optimal only if the cross derivative of the utility function is equal to zero, whereas under unfair premium, optimal partial insurance is validated only if the cross derivative is positive. We also show that insurance and self-insurance may be substitutes, and if preferences are separable and the cost of insurance is not so high, then insurance and self-insurance are always considered as substitutes. However, we find in an illustration with a non-separable bivariate utility function, characterized by weights given to consumption and amenities, that insurance and self-insurance are complement. We obtain that the weight given to amenities substantially affects optimal risk management activities for unfair insurance. These results highlight the importance to represent the forest owner’s behavior through a bivariate utility function.

Keywords: Bivariate utility; Cross derivative; Forest management; Insurance; Risk; Self-insurance (search for similar items in EconPapers)
Date: 2018
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Related works:
Working Paper: Risk management activities of a non-industrial private forest owner with a bivariate utility function (2018)
Working Paper: Risk management activities of a non-industrial private forest owner with a bivariate utility function (2014)
Working Paper: Risk management activities of a non-industrial private forest owner with a bivariate utility function (2014) Downloads
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