Accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk
Weather index insurance is a potential solution to a widely acknowledged problem of information asymmetries in agricultural crop insurance. Insurance where payouts depend on a weather index relies on accurate estimates of local weather, such as temperature and rainfall. Using a geostatistical krigin...
| Autor principal: | |
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| Formato: | H2 |
| Lenguaje: | Inglés sueco |
| Publicado: |
SLU/Dept. of Economics
2019
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| Materias: |
| _version_ | 1855572500528758784 |
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| author | Leppert, Daniel |
| author_browse | Leppert, Daniel |
| author_facet | Leppert, Daniel |
| author_sort | Leppert, Daniel |
| collection | Epsilon Archive for Student Projects |
| description | Weather index insurance is a potential solution to a widely acknowledged problem of information asymmetries in agricultural crop insurance. Insurance where payouts depend on a weather index relies on accurate estimates of local weather, such as temperature and rainfall. Using a geostatistical kriging method and empirical weather and crop yield data from Illinois, I explore whether accounting for geographic approximation errors produces more desirable index insurance contracts. I find that switching to this so-called geographic basis risk-adjusted contract improves farmers’ utility for one of our two indices, but not for the other. Further, purchasing any index insurance contract only improves farmers’ utility during a particularly hot year. During a cooler year, purchasing WI insurance results in lower utility for risk neutral farmer, and constant utility for risk averse farmers. |
| format | H2 |
| id | RepoSLU14973 |
| institution | Swedish University of Agricultural Sciences |
| language | Inglés swe |
| publishDate | 2019 |
| publishDateSort | 2019 |
| publisher | SLU/Dept. of Economics |
| publisherStr | SLU/Dept. of Economics |
| record_format | eprints |
| spelling | RepoSLU149732020-06-04T12:17:38Z Accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk Leppert, Daniel agricultural economics geographic basis risk weather index insurance kriging climate change Weather index insurance is a potential solution to a widely acknowledged problem of information asymmetries in agricultural crop insurance. Insurance where payouts depend on a weather index relies on accurate estimates of local weather, such as temperature and rainfall. Using a geostatistical kriging method and empirical weather and crop yield data from Illinois, I explore whether accounting for geographic approximation errors produces more desirable index insurance contracts. I find that switching to this so-called geographic basis risk-adjusted contract improves farmers’ utility for one of our two indices, but not for the other. Further, purchasing any index insurance contract only improves farmers’ utility during a particularly hot year. During a cooler year, purchasing WI insurance results in lower utility for risk neutral farmer, and constant utility for risk averse farmers. Jordbruksförsäkring baserat på ett underliggande väderindex, t.ex. temperatur eller nederbörd är en potentiel lösning på ett uppmärksammat problem med informationsassymetrier i försäkringsbranschen. Dessa så kallade väderindexkontrakt bygger på att förluster i jordbruket med viss säkerhet kan kopplas till extrema väderförhållanden. I denna uppsats använder jag kriging, en geostatistisk metod för prediktion av spatial data, för att beräkna variansen som beror på avstånd mellan punkt där temperaturen skall estimeras och väderstationer från vilka temperaturdata hämtas. Jag undersöker hur temperaturindexförsäkring kan förbättras genom att ta hänsyn till denna varians och finner att dessa s.k. basriskjusterade kontrakt presterar bättre när ett vanligt temperaturindex används. Indexförsäkring gynnar dock enligt mina beräkningar bara lantbrukare under ovanligt varma år. Under svalare år missgynnas riskneutrala bönder av att köpa indexförsäkring, medan riskaversa bönder är mer ambivalenta. SLU/Dept. of Economics 2019 H2 eng swe https://stud.epsilon.slu.se/14973/ |
| spellingShingle | agricultural economics geographic basis risk weather index insurance kriging climate change Leppert, Daniel Accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk |
| title | Accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk |
| title_full | Accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk |
| title_fullStr | Accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk |
| title_full_unstemmed | Accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk |
| title_short | Accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk |
| title_sort | accounting for geographic basis risk in agricultural weather index insurance : how kriging prediction may improve protection against climate risk |
| topic | agricultural economics geographic basis risk weather index insurance kriging climate change |