Production under uncertainty with insurance or hedging

Hau, Arthur

doi:10.1016/j.insmatheco.2005.09.006

Cited by 12 publications

(7 citation statements)

References 20 publications

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“…In this situation, crop insurance is one of the individual's choices, playing the role of promotion. Equation (11) shows the effect of crop insurance premium on agricultural output. Differentiating both sides of equation 11 (8).…”

Section: The Output Effect Of Crop Insurancementioning

confidence: 99%

“…Similarly, Chambers and Quiggin (2001) develop a framework to analyze input adjustment for stochastic technologies and apply to the case of actuarially fair production insurance, and the decomposition consists of a pure-risk effect and an expansion effect. Hau (2006) examines the output decision of a risk-averse producer facing profit risk in the presence of insurance or hedging, and derives the conditions under which the introduction of generic insurance increases output. Ye et al (2012) study the agriculture production behavior under premium subsidy by applying the Classic Insurance Model, and…”

Section: Introductionmentioning

confidence: 99%

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Crop Insurance, Premium Subsidy and Agricultural Output

Liao

2014

Journal of Integrative Agriculture

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In this paper, we study the effects of crop insurance on agricultural output in an economic growth model. Based on Ramsey-Cass-Koopmans (RCK) model, we develop a basic model of agriculture economic growth. Extending the basic model to incorporate uncertainty and insurance mechanism, we build a risk model and a risk-insurance model to study the influences of risk and crop insurance on agricultural output. Comparing the steady states of the three models, we get the results that: (i) agricultural output decreases if we introduce uncertainty into the risk-free model; (ii) crop insurance promotes agriculture economic growth if insurance mechanism is introduced into the risk model; (iii) premium subsidy constantly improves agricultural output. Our contribution is that we study the effects of crop insurance and premium subsidy from the perspective of economic growth in a dynamic framework, and prove the output promotion of crop insurance theoretically.

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Section: The Output Effect Of Crop Insurancementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Crop Insurance, Premium Subsidy and Agricultural Output

Liao

2014

Journal of Integrative Agriculture

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“…Hence, the producer optimally produces at the output level, Q 1 , that solves C (Q 1 ) = (1 − pγ)P , which is also the optimal output level should the producer be risk neutral. By fully insuring against the revenue risk, the risk-averse producer is induced to produce more so that Q 1 exceeds the output level without insurance, Q † (see, e.g., Machnes, 1995;Ford et al, 1996;Wong, 2000;Machnes and Wong, 2003;Hau, 2006).…”

Section: Optimal Production and Insurance Decisionsmentioning

confidence: 99%

“…Revenue insurance, such as multiple peril crop insurance (Mahul and Vermersch, 2000) and livestock revenue insurance (Hart et al, 2001), has been introduced for many agricultural products, which serves as a risk-sharing mechanism between farmers and insurers. The literature that examines the effect of revenue insurance on the behavior of a risk-averse producer is largely conducted within the von Neumann-Morgenstern expected utility context (see, e.g., Machnes, 1995;Ford et al, 1996;Wong, 2000;Machnes and Wong, 2003;Hau, 2006; to name just a few). Such an approach rules out the situation that the producer may have a desire to avoid consequences wherein the producer appears to have made ex-post suboptimal decisions, which are de facto optimal ex ante based on the information available at that time.…”

Section: Introductionmentioning

confidence: 99%

Production and insurance under regret aversion

Wong

2012

Economic Modelling

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This paper examines the behavior of a regret-averse producer facing revenue risk. To insure against the revenue risk, the producer can purchase a coinsurance contract with an endogenously chosen coinsurance rate. Regret-averse preferences are characterized by a utility function that includes disutility from having chosen ex-post suboptimal alternatives. We show that the regret-averse producer never fully insures against the revenue risk even though the coinsurance contract is actuarially fair. When the producer is sufficiently regret averse and the loss probability is high, we further show that the regret-averse producer chooses not to purchase the actuarially fair coinsurance contract. Even when purchasing the actuarially fair coinsurance contract is optimal, we derive sufficient conditions under which the regret-averse producer reduces the optimal output level as compared to that without the coinsurance contract. These results are distinct from those under pure risk aversion, thereby making the consideration of regret aversion crucial.

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“…Agricultural business is a very high-risk job and an increase demand for agricultural products from one side, steady increase in production cost and weather changes, on the other side, have motivated many to use insurance for agricultural products (Mahul & Vermersch, 2000;Wong, 2002;Hau, 2006). During the past few years, there have been several studies associated with agricultural products.…”

Section: Introductionmentioning

confidence: 99%

A survey on critical factors influencing agricultural insurance

Azad¹,

Zangeneh²,

Seyedaliakbar³

et al. 2013

msl

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Agricultural business is a very high-risk job and an increase demand for agricultural products from one side and steady increase in production cost and weather changes, on the other side, have motivated many to use insurance for agricultural products. Insurance plays an important role in influencing crop production and insured satisfaction or farmers. The purpose of this research is to find critical components in agricultural insurance. Based on an exploration of the literature review and interviews, the proposed study of this paper extracts 24 variables and using factor analysis, we select the most important factors, which are grouped in seven categories. The implementation of our factor analysis has revealed uncertainty, moderator, market equilibrium, risky environment, empowering factor, education, training, structural hazards and natural ecosystems as the most important factors influencing agricultural industry.

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Production under uncertainty with insurance or hedging

Cited by 12 publications

References 20 publications

Crop Insurance, Premium Subsidy and Agricultural Output

Crop Insurance, Premium Subsidy and Agricultural Output

Production and insurance under regret aversion

A survey on critical factors influencing agricultural insurance

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