Journal Article

Adaptive local parametric estimation of crop yields: implications for crop insurance rate making

Zhiwei Shen, Martin Odening and Ostap Okhrin

in European Review of Agricultural Economics

Volume 45, issue 2, pages 173-203
Published in print April 2018 | ISSN: 0165-1587
Published online December 2017 | e-ISSN: 1464-3618 | DOI: http://dx.doi.org/10.1093/erae/jbx028
Adaptive local parametric estimation of crop yields: implications for crop insurance rate making

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  • Econometric and Statistical Methods and Methodology: General
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Abstract

The estimation model of crop yields is a prerequisite for deriving actuarially sound insurance premiums. A major challenge in estimating crop yield models arises from the non-stationarity of the data generating process due to technological change and climate change. In this paper, we introduce an adaptive local parametric approach to deal with the non-stationarity of crop yields. An empirical application to major crops in the USA indicates that yield risks for corn and cotton are decreasing, but are increasing for winter wheat. A rating analysis suggests that the proposed model shows potential to obtain more accurate rates than commonly used methodology.

Keywords: crop yields; crop insurance pricing; local parametric approach

Journal Article.  10293 words.  Illustrated.

Subjects: Econometric and Statistical Methods and Methodology: General ; Agricultural Economics

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