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

A. Ford Ramsey; Barry K. Goodwin; S. Ghosh

Treesearch

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

Formally Refereed

Authors:

A. Ford Ramsey, Barry K. Goodwin, S. Ghosh

Year:

2019

Type:

Scientific Journal

Station:

Southern Research Station

Source:

Journal of Agricultural and Resource Economics

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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.

Keywords

copulas, dependence, revenue insurance, risk management

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.