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Risk-Reducing Effectiveness of Revenue versus Yield Insurance in the Presence of Government Payments

Published online by Cambridge University Press:  26 January 2015

Dmitry V. Vedenov  and
Gabriel J. Power
Dmitry V. Vedenov
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station, TX
Gabriel J. Power
Affiliation:
Department of Agricultural Economics, Texas A&M University, College Station, TX
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Abstract

Government farm support programs such as Loan Deficiency Payments (LDP) and Counter-Cyclical Payments (CCP) have payoff structures that effectively make them costless price insurance instruments. A combination of these payments with yield insurance may provide a viable alternative to revenue insurance. This paper finds that, contrary to expectations, the revenue product analyzed is uniformly superior to yield insurance under both current (2002) and proposed (2008) Farm Bill structures of government payments. Given minor adjustments, however, yield insurance combined with government payments can provide more effective risk management than revenue insurance in production areas with low yield–price correlation.

Keywords

copulascrop insurancefarm billgovernment paymentsQ14Q18
Type
Invited Paper Sessions
Information
Journal of Agricultural and Applied Economics , Volume 40 , Issue 2 , August 2008 , pp. 443 - 459
Copyright
Copyright © Southern Agricultural Economics Association 2008

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