Aggregation in area-yield crop insurance: The linear additive model

Bharat Ramaswami, Terry L. Roe

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)420-431
Number of pages12
JournalAmerican Journal of Agricultural Economics
Volume86
Issue number2
DOIs
StatePublished - May 2004

Keywords

  • Area yield
  • Beta
  • Crop insurance
  • Systemic risks

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