THE EFFECTS OF CROP YIELD INSURANCE DESIGNS ON FARMER PARTICIPATION AND WELFARE

The performance of individual farm yield and area yield crop insurance programs is evaluated for a representative Iowa corn farm using numer ical optimization of expected utility and simulation techniques. Sever al different contract design features are studied, including the natur e of the yield index which triggers insurance payouts, alternative res trictions on coverage levels, and alternative pricing structures. Perf ormance is evaluated in terms of impacts on farmer participation and w elfare and is examined in a portfolio setting where futures and option s are also available to farmers. The relative performance of different crop insurance designs is found to be particularly sensitive to restr ictions on coverage levels, the size of premium loadings, and the degr ee to which individual farm yields are correlated with area yields.