Cooperative and Area Yield Insurance: A Theoretical Analysis

Pablo Pincheira and Kimberly A. Zeuli

No 31822, 2005 Annual Meeting, November 8-9 from NCERA-194 Research on Cooperatives

Abstract: The purpose of this paper it to theoretically investigate the potential benefits that arise from a cooperative selling a government subsidized area-yield contract (i.e., the Group Risk Plan). The indemnities in area-yield contracts are triggered by a geographically determined yield (e.g, a country-wide yield average) instead of the more conventional individual actual production history. Therefore, an area-yield contract would be appropriate for managing the cooperative's systemic throughput risk. The cooperative would also capture some of the substantial government subsidies that are normally given to a private insurance company. Our primary finding is that farmers should be indifferent when considering the decisions to purchase area-yield insurance from a private company or encompass that business in their cooperative. We derive this result from the specific case of costless insurance and assume a Pareto Optimal contract. Under these assumptions, the government subsidies that the cooperative would hope to capture are simply a net deduction in their premiums. In other words, the benefit they capture from the subsidies in the same when they purchase the insurance from an outside firm or internally.

Keywords: Risk and Uncertainty; Agribusiness (search for similar items in EconPapers)
Pages: 12
Date: 2005
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https://ageconsearch.umn.edu/record/31822/files/cp05pi01.pdf (application/pdf)

Related works:
Working Paper: Cooperatives and Area Yield Insurance:A Theoretical Analysis (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ncerfi:31822

DOI: 10.22004/ag.econ.31822

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