Insuring Eggs in Baskets

Chad Hart, Dermot Hayes and Bruce Babcock

Center for Agricultural and Rural Development (CARD) Publications from Center for Agricultural and Rural Development (CARD) at Iowa State University

Abstract: The vast majority of crop and revenue insurance policies sold in the United States are single-crop policies that insure against low yields or low revenues for each crop grown on a particular farm. This practice of insuring one crop at a time runs counter to the traditional risk management practice of diversifying across several enterprises to avoid putting all of ones eggs in a single basket. This paper examines the construction of whole-farm crop revenue insurance programs to include livestock. The whole-farm insurance product covers crop revenues from corn and soybeans and livestock revenues from hog production. The results show that at coverage levels of 95 percent or lower, the fair insurance premiums for this product on a well-diversified Iowa hog farm are far lower than the fair premiums for the corn crop alone on the same farm. The calculation of premium rates for the whole-farm insurance product is derived from a method for imposing correlations first proposed by Iman and Conover in 1982.

Keywords: correlations; diversification; livestock; volatilities; whole-farm revenue insurance. (search for similar items in EconPapers)
Date: 2003-07
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Insuring Eggs in Baskets: Should the Government Insure Individual Risks? (2006)
Working Paper: Insuring Eggs in Baskets: Should the Government Insure Individual Risks? (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ias:cpaper:03-wp339

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