Modeling Texas Dryland Cotton Yields, With Application to Crop Insurance Actuarial Rating
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Texas dryland upland cotton yields have historically exhibited greater variation and more
distributional irregularities than the yields of other crops, raising concerns that
conventional parametric distribution models may generate biased or otherwise inaccurate
crop insurance premium rate estimates. Here, we formulate and estimate regime-switching
models for Texas dryland cotton yields in which the distribution of yield is conditioned on
local drought conditions. Our results indicate that drought-conditioned regime-switching
models provide a better fit to Texas county-level dryland cotton yields than conventional
parametric distribution models. They do not, however, generate significantly different
Group Risk Plan crop insurance premium rate estimates.