INSURING EGGS IN BASKETS

Chad E. Hart, Dermot Hayes and Bruce A. Babcock

No 18497, Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem

Abstract: The vast majority of crop and revenue insurance policies sold in the United States are single-crop policies that insure against low yields or low revenues for each crop grown on a particular farm. This practice of insuring one crop at a time runs counter to the traditional risk management practice of diversifying across several enterprises to avoid putting all of ones eggs in a single basket. This paper examines the construction of whole-farm crop revenue insurance programs to include livestock. The whole-farm insurance product covers crop revenues from corn and soybeans and livestock revenues from hog production. The results show that at coverage levels of 95 percent or lower, the fair insurance premiums for this product on a well-diversified Iowa hog farm are far lower than the fair premiums for the corn crop alone on the same farm. The calculation of premium rates for the whole-farm insurance product is derived from a method for imposing correlations first proposed by Iman and Conover in 1982.

Keywords: Livestock Production/Industries; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 27
Date: 2003
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https://ageconsearch.umn.edu/record/18497/files/wp020339.pdf (application/pdf)

Related works:
Working Paper: Insuring Eggs in Baskets (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:hebarc:18497

DOI: 10.22004/ag.econ.18497

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