Modeling Yield Risk Under Technological Change: Dynamic Yield Distributions and the U.S. Crop Insurance Program
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The objective of this study is to evaluate the risk associated with major agricultural
commodity yields in the United States. We are particularly concerned with the nonstationary
nature of the yield distribution, which arises primarily as a result of technological
progress and changing environmental conditions over time. In contrast to common
two-stage methods, we propose an alternative parametric model that allows the moments
of yield distributions to change with time. Several model selection techniques suggest the
proposed time-varying model outperforms more conventional models in terms of in-sample
goodness-of-fit, out-of-sample predictive power, and the prediction accuracy of
insurance premium rates.