Catastrophic crop insurance effectiveness: does it make a difference how yield losses are conditioned?

Raushan Bokusheva (raushan.bokusheva@zhaw.ch) and Sarah Conradt

No 122443, 123rd Seminar, February 23-24, 2012, Dublin, Ireland from European Association of Agricultural Economists

Abstract: The study evaluates the effectiveness of a catastrophic drought-index insurance developed by applying two alternative methods - the standard regression analysis and the copula approach. Most empirical analyses obtain estimates of the dependence of crop yields on weather by employing linear regression. By doing so, they assume that the sensitivity of yields to weather remains constant over the whole distribution of the weather variable and can be captured by the effect of the weather index on the yield conditional mean. In our study we evaluate, whether the prediction of farm yield losses can be done more accurately by conditioning yields on extreme realisations of a weather index. Therefore, we model the dependence structure between yields and weather by employing the copula approach. Our preliminary results suggests that the use of copulas might be a more adequate way to design and rate weather-based insurance against extreme events.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 14
Date: 2012-04-10
New Economics Papers: this item is included in nep-agr and nep-ias
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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaa123:122443

DOI: 10.22004/ag.econ.122443

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