How high the hedge: Relationships between prices and yields in the federal crop insurance program

  • Authors: Ramsey, A. Ford; Goodwin, Barry K.; Ghosh, S.
  • Publication Year: 2019
  • Publication Series: Scientific Journal (JRNL)
  • Source: Journal of Agricultural and Resource Economics

Abstract

The theory of the natural hedge states that agricultural yields and prices are inversely related. Actuarial rules for U.S. crop revenue insurance assume that dependence between yield and price is constant across all counties within a state and that dependence can be adequately described by the Gaussian copula.We use nonlinear measures of association and a selection of bivariate copulas to empirically characterize spatially-varying dependence between prices and yields and examine premium rate sensitivity for all corn producing counties in the United States. A simulation analysis across copula types and parameter values exposes hypothetical impacts of actuarial changes.

  • Citation: Ramsey, A. Ford; Goodwin, Barry K.; Ghosh, S. 2019. How high the hedge: Relationships between prices and yields in the federal crop insurance program. Journal of Agricultural and Resource Economics 44(2): 227-245. Online supplement added to the end of publication.
  • Keywords: copulas, dependence, revenue insurance, risk management
  • Posted Date: July 19, 2019
  • Modified Date: July 24, 2019
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