Is Area Yield Insurance Competitive with Farm Yield Insurance?

Abstract

This article compares risk reduction from MPCI and GRP crop insurance contracts. The analysis extends and improves on the existing area-yield insurance literature in four important respects. First, the geographical scope greatly exceeds that of previous work. Second, unlike previous efforts, the area is not assumed to consist only of those farms included in the analysis. Third, the analysis is based on the actual GRP indemnity function rather than the area-yield indemnity function commonly used in the literature. Fourth, the analysis avoids the questionable assumption that GRP scale can be optimized at the individual farm level. Even with a number of conservative assumptions favoring MPCI relative to GRP, results indicate that at least for some crops and regions GRP is a viable alternative to MPCI.

Keywords

• area yield insurance
• multiple peril crop insurance
• risk reduction