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Empirically Evaluating the Flexibility of the Johnson Family of Distributions: A Crop Insurance Application

Published online by Cambridge University Press:  15 September 2016

Yue Lu ,
Octavio A. Ramirez ,
Roderick M. Rejesus ,
Thomas O. Knight  and
Bruce J. Sherrick
Yue Lu
Affiliation:
Department of Agricultural Economics and Agricultural Business at New Mexico State University in Las Cruces, New Mexico
Octavio A. Ramirez
Affiliation:
Department of Agricultural Economics and Agricultural Business at New Mexico State University in Las Cruces, New Mexico
Roderick M. Rejesus
Affiliation:
Department of Agricultural and Resource Economics at North Carolina State University in Raleigh, North Carolina
Thomas O. Knight
Affiliation:
Department of Agricultural and Applied Economics at Texas Tech University in Lubbock, Texas
Bruce J. Sherrick
Affiliation:
Department of Agricultural and Consumer Economics at the University of Illinois at Urbana-Champaign in Urbana, Illinois
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Abstract

This article examines the flexibility of the Johnson system of distributions by assessing its performance in terms of modeling crop yields for the purpose of setting actuarially fair crop insurance premiums. Using data from corn farms in Illinois coupled with Monte Carlo simulation procedures, we found that average crop insurance premiums computed on the basis of the Johnson system provide reasonably accurate estimates even when the data are normal or come from a non-normal distribution other than the Johnson system (i.e., a beta). These results suggest that there is potential for using the Johnson system to rate previously uninsured crops that do not have historical insurance performance data upon which to base premium calculations.

Keywords

crop insurancecrop yield modelingJohnson distributionpremium rate setting
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 37 , Issue 1 , April 2008 , pp. 79 - 91
Copyright
Copyright © 2008 Northeastern Agricultural and Resource Economics Association 

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