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 language | English (US) |
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Pages (from-to) | 420-431 |
Number of pages | 12 |
Journal | American Journal of Agricultural Economics |
Volume | 86 |
Issue number | 2 |
DOIs | |
State | Published - May 2004 |
Keywords
- Area yield
- Beta
- Crop insurance
- Systemic risks