CROP INSURANCE VALUATION UNDER ALTERNATIVE YIELD DISTRIBUTIONS
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Considerable disagreement exists about the most appropriate characterization of farm-level yield distributions. Yet, the economic importance of alternate yield distribution specifications on insurance valuation, product designs and farm-level risk management has not been investigated or documented. The results of this study demonstrate that large differences in expected payments from popular crop insurance products can arise solely from the parameterization chosen to represent yields. The results suggest that the frequently unexamined yield distribution specification may lead to incorrect conclusions in important areas of insurance and risk management research such as policy rating, and assessment of expected payments from policies.