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Agriculture

2002

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Full-Text Articles in Insurance

Crop Insurance Rates And The Laws Of Probability, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes Apr 2002

Crop Insurance Rates And The Laws Of Probability, Bruce A. Babcock, Chad E. Hart, Dermot J. Hayes

CARD Working Papers

Increased crop insurance subsidies have increased the demand for insurance at coverage levels higher than the traditional level of 65 percent. Premium rates for higher levels of yield insurance under the Federal Actual Production History (APH) program equal the premium rate at the 65 percent coverage level multiplied by a rate relativity factor that varies by coverage level but not by crop or region. In this paper, we examine the consistency of these constant rate relativity factors with the laws of probability by determining the maximum 65 percent premium rate that is consistent with a well-defined yield distribution. We find ...