Climate and agricultural risk: measuring the effect of ENSO on U.S. crop insurance. (20th January 2015)

• Record Type: Journal Article
• Authors: Tack, Jesse B.; Ubilava, David
• Is Part Of: Agricultural economics. Volume 46:Number 2(2015:Mar.)
• Page Start: 245
• Page End: 257
• Publication Date: 2015-01-20
• Subjects: Agriculture -- Economic aspects -- Periodicals; 338.105
• DOI: 10.1111/agec.12154
• Languages: English
• ISSNs: 0169-5150

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <p>Predictive models of climatic phenomena can aid in insurance program design and decision making. Extreme weather outcomes have been linked to the El Niño Southern Oscillation (ENSO), which globally impacts agricultural production. This study demonstrates that extreme ENSO events alter cotton yield distributions in the Southeastern United States. These impacts translate into economically meaningful effects on crop insurance premium rates. Commercial insurers can use publicly available information to determine if government‐set premium rates are mispriced, and in turn extract economic rents via the federally mandated Standard Reinsurance Agreement. By ceding underpriced policies in El Niño and La Niña years, we find that private insurance companies can reduce paid indemnities by 10–15% on average.</p> </abstract>