Optimal Area‐Yield Crop Insurance Reconsidered

Jean-Marc Bourgeon and Robert Chambers
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Robert Chambers: UWA - The University of Western Australia

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Abstract: The implementability of area‐yield insurance contracts in the presence of symmetric and asymmetric information about the farmer's "beta" linking his yield to the risk‐pool's yield is examined. In the presence of fixed costs and symmetric information Mahul's result that optimality requires setting the slope of the indemnity schedule equal to each farmer's beta is confirmed. When there is asymmetric information between the insurer and the farmer, however, this full‐insurance contract is vulnerable to adverse selection, and therefore may not be implementable for general cost structures. The optimal area‐yield insurance contract under asymmetric information is characterized.

Keywords: Area‐yield insurance; Asymetric information; Risk aversion; Asymétrie d'information; Aversion au risque (search for similar items in EconPapers)
Date: 2003-08
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Published in American Journal of Agricultural Economics, 2003, 85 (3), pp.590-604. ⟨10.1111/1467-8276.00458⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02968364

DOI: 10.1111/1467-8276.00458

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