Modeling Yield Risk Under Technological Change: Dynamic Yield Distribution and the U.S Crop Insurance Program

Ying Zhu, Barry Goodwin () and Sujit K. Ghosh

No 102048, Working Papers from Structure and Performance of Agriculture and Agri-products Industry (SPAA)

Abstract: The objective of this study is to evaluate and model the yield risk associated with major agricultural commodities in the U.S. We are particularly concerned with the nonstationary nature of the yield distribution, which primarily arises because of technological progress and changing environmental conditions. Precise risk assessment depends on the accuracy of modeling this distribution. This problem becomes more challenging as the yield distribution changes over time, a condition that holds for nearly all major crops. A common approach to this problem is based on a two-stage method in which the yield is first detrended and then the estimated residuals are treated as observed data and modeled using various parametric or nonparametric methods. We propose an alternative parametric model that allows the moments of the yield distributions to change with time. Several model selection techniques suggest that the proposed time-varying model outperforms more conventional models in terms of in-sample goodness-of-fit, out-of-sample predictive power and the prediction accuracy of insurance premium rates.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 32
Date: 2011-01
New Economics Papers: this item is included in nep-agr and nep-ias
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Modeling Yield Risk Under Technological Change: Dynamic Yield Distributions and the U.S. Crop Insurance Program (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:spaawp:102048

DOI: 10.22004/ag.econ.102048

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