Aggregation in Area‐Yield Crop Insurance: The Linear Additive Model

12 Pages Posted: 21 Apr 2020

See all articles by Bharat Ramaswami

Bharat Ramaswami

Indian Statistical Institute

Terry L. Roe

University of Minnesota - College of Agricultural, Food and Environmental Sciences - Department of Applied Economics

Date Written: May 2004

Abstract

Previous analyses of area yield crop insurance have used a linear additive model (LAM) to express the relationship between individual and area yield. However, the theoretical foundations of the LAM are unknown. This shortcoming is addressed by establishing two conditions linking microvariables and LAM parameters. The conditions relate to the interaction of risks in individual technologies and the extent of aggregation. If systemic and individual risks are additive in individual yields, and if the law of large numbers hold, then the LAM obtains. This article also shows how departures from these conditions affect the results derived from a LAM analysis.

Keywords: area yield, beta, crop insurance, systemic risks

Suggested Citation

Ramaswami, Bharat and Roe, Terry L., Aggregation in Area‐Yield Crop Insurance: The Linear Additive Model (May 2004). American Journal of Agricultural Economics, Vol. 86, Issue 2, pp. 420-431, 2004, Available at SSRN: https://ssrn.com/abstract=3581083 or http://dx.doi.org/10.1111/j.0092-5853.2004.00588.x

Bharat Ramaswami (Contact Author)

Indian Statistical Institute ( email )

7 S. J. S. Sansanwal Marg
New Delhi, 110016
India
91 11 6514594 (Phone)
91 11 6856779 (Fax)

Terry L. Roe

University of Minnesota - College of Agricultural, Food and Environmental Sciences - Department of Applied Economics ( email )

1994 Buford Avenue
St. Paul, MN 55108
United States

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