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Modeling the Switch from Hail Insurance to Anti-Hail Nets

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 BEMPS64, BEMPS - Bozen Economics & Management Paper Series from Faculty of Economics and Management at the Free University of Bozen

Abstract: In several areas of the world, hail is one of the most detrimental atmospheric phenomenon for agriculture, causing a significant loss of output and, consequently, of farms’ revenues. Despite being a highly stochastic and localized phenomenon, thus allowing for a sustainable insurance market to hedge against its detrimental effects, this last is often subsidised. The present paper tries to figure out if the promotion of an alternative hedging instrument, anti-hail nets, could help to increase the actuarial soundness of the hail insurance market. In the first part of the paper a simple model is presented showing that the relation between the differential profitability of anti-hail nets versus insurance and the plot specific versus the average expected damage has an inverse U-shape. This implies that incentives to anti-hail nets could cause low risk farmers to exit the insurance market more likely than high risk ones. Such finding is confirmed by the empirical investigation, further showing that higher per-hectare output values and being located in an area strongly affected by hail increase the chance of a plot to be hedged through anti-hail nets.

Keywords: Actuarial soundness; Agricultural insurance markets; Anti-hail nets; Hail; Panel data (search for similar items in EconPapers)
JEL-codes: D22 Q12 Q18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr and nep-ias
Date: 2019-07
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