The economics of crop hail insurance

The demand for crop hail insurance is examined in both static and dynamic m odels and both with and without all-risk crop insurance. Contrary to genera l results on optimal insurance with background risk, crop revenue uncertain ty induces the fanner to decrease rather than increase coverage. The under- insurance results are strengthened when farmers are able to dynamically upd ate their insurance portfolio as information about the value of the crop is revealed over time. When hail insurance is purchased along with all-risk c rop insurance, two alternative approaches are examined and their efficiency properties compared.