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Choosing between Hail Insurance and Anti-Hail Nets: A Simple Model and a Simulation among Apples Producers in South Tyrol

Marco Rogna (), Günter Schamel () and Alex Weissensteiner and Management ()
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Günter Schamel: Free University of Bolzano‐Bozen, Faculty of Economics and Management, Italy
Alex Weissensteiner and Management: Free University of Bolzano‐Bozen, Faculty of Economics and Management, Italy

No BEMPS62, BEMPS - Bozen Economics & Management Paper Series from Faculty of Economics and Management at the Free University of Bozen

Abstract: There is a growing interest in analysing the diffusion of agricultural insurance, seen as an effective tool for managing farm risks. Much atten- tion has been dedicated to understanding the scarce adoption rate despite high levels of subsidization and policy support. In this paper, we analyse an aspect that seems to have been partially overlooked: the potential competing nature between insurance and other risk management tools. We consider hail as a single source weather shock and analyse the potential competing effect of anti-hail nets over insurance as instruments to cope with this shock by presenting a simple theoretical model that is rooted into expected utility theory. After describing the basic model, we perform some comparative static analysis to identify the role of individual elements that are shaping farmers' decisions. From this exercise it results that the worth of anti-hail nets compared to insurance is an increasing function of the overall risk of hail damages, of the farmers' level of risk aversion and of the worth of the agricultural output. Finally, we develop a simulation model using data related to apple production in South Tyrol, a Northern-Italian province with a relatively high risk of hail. The model generally confirms the results of the comparative static analysis and it shows that, in this region, anti-hail nets are often superior than insurance in expected utility terms.

Keywords: Actuarial soundness; Agricultural insurance markets; Antihail nets; Hail; Expected utility (search for similar items in EconPapers)
JEL-codes: Q12 Q18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-cmp, nep-ias, nep-rmg and nep-upt
Date: 2019-04
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