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농촌경제

Reducing the Social Cost of Federal Crop Insurance: A Role for Government Hedging with Weather Derivatives

2013.08.12 8491
연구보고서 표지
  • 저자
    정원호
  • 등록일
    2013.08.12
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목차

Ⅰ. Introduction
Ⅱ. Conceptual Framework
Ⅲ. Methodology
Ⅳ. Empirical Results
Ⅴ. Conclusions

요약문

Previous studies have shown that weather derivatives are an effective means of hedging agricultural production risk. Yet, it is still unclear what role weather derivatives will play in agriculture as a risk management tool as compared with existing crop insurance programs which depend highly on government subsidies. This study compares the hedging cost and effectiveness of weather options and crop insurance for soybean in southern Minnesota. Our results show that the hedging effectiveness of weather options is limited at the farm level while the effectiveness increases as the level of aggregation increases. Thus, individual farmers will continue to prefer the federal crop insurance program to weather derivatives for their production risk management. However, the US government as an insurer, which currently does not hedge its risk exposures taken from farmers in the federal crop insurance program, could reduce the implied social cost in the form of un-hedged risk exposure by use of the weather options in the financial market.

Previous studies have shown that weather derivatives are an effective means of hedging agricultural production risk. Yet, it is still unclear what role weather derivatives will play in agriculture as a risk management tool as compared with existing crop insurance programs which depend highly on government subsidies. This study compares the hedging cost and effectiveness of weather options and crop insurance for soybean in southern Minnesota. Our results show that the hedging effectiveness of weather options is limited at the farm level while the effectiveness increases as the level of aggregation increases. Thus, individual farmers will continue to prefer the federal crop insurance program to weather derivatives for their production risk management. However, the US government as an insurer, which currently does not hedge its risk exposures taken from farmers in the federal crop insurance program, could reduce the implied social cost in the form of un-hedged risk exposure by use of the weather options in the financial market.

저자정보
정원호Chung, Wonho
일용직
소속: 연우회
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저자에게 문의
정원호Chung, Wonho
일용직
소속: 연우회
저자에게 문의
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