Cooperatives and Area Yield Insurance:A Theoretical Analysis

Pablo Pincheira and Kimberly Zeuli

MPRA Paper from University Library of Munich, Germany

Abstract: The purpose of this paper is to theoretically investigate the potential benefits that arise from a cooperative selling a government subsidized area-yield contract (i.e., the Group Risk Plan). The indeminities in area-yield contracts are triggered by a geographically determined yield (e.g., a county-wide yield average) instead of the more conventional individual actual production history. Therefore, an area-yield contract would be appropriate for managing the cooperative's systemic throughput risk. The cooperative would also capture some of the substantial government subsidies that are normally given to a private insurance company. Our primary finding is that farmers should be indifferent when considering the decision to purchase area-yield insurance from a private company or encompass that business in their cooperative. We derive this result for the specific case of costless insurance and assume a Pareto Optimal contract. Under these assumptions, the government subsidies that the cooperative would hope to capture are simply a net deduction in their premiums. In other words, the benefit they capture from the subsidies is the same when they purchase the insurance from an outside firm or internally.

Keywords: Cooperatives; Area Yield Insurance; Optimal indemnity (search for similar items in EconPapers)
JEL-codes: D6 D8 L3 Q13 (search for similar items in EconPapers)
Date: 2007-12
New Economics Papers: this item is included in nep-agr, nep-fmk and nep-ias
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https://mpra.ub.uni-muenchen.de/6174/1/MPRA_paper_6174.pdf original version (application/pdf)

Related works:
Working Paper: Cooperative and Area Yield Insurance: A Theoretical Analysis (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:6174

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