Constrained Efficient Contracts for Area Yield Crop Insurance

9 Pages Posted: 24 Mar 2020

See all articles by James A. Vercammen

James A. Vercammen

University of British Columbia (UBC) - Sauder School of Business

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Date Written: November 2000

Abstract

With area yield crop insurance, indemnification occurs when area yield falls below a yield trigger that is chosen by the producer. The maximum value for this yield trigger is generally restricted (e.g., 80% of the long term area average yield). The impact of this trigger constraint on the optimal design of an area yield insurance contract is examined. Within the constrained efficient contract, indemnities consist of both a lump sum payment and a payment that is proportional to the yield shortfall. Because lump sum payments may not be feasible to implement, efficiency‐enhancing modifications to standard contracts are also proposed.

Keywords: area yield insurance, optimal contracts, yield trigger, G220, Q140

Suggested Citation

Vercammen, James A., Constrained Efficient Contracts for Area Yield Crop Insurance (November 2000). American Journal of Agricultural Economics, Vol. 82, Issue 4, pp. 856-864, 2000, Available at SSRN: https://ssrn.com/abstract=3558093 or http://dx.doi.org/10.1111/0002-9092.00086

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