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Impact of copula choice on the modeling of crop yield basis risk |
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| Authors: | Joshua D Woodard Nicholas D Paulson Dmitry Vedenov Gabriel J Power |
| Institution: | 1. Dyson School of Applied Economics and Management, Cornell University, Ithaca, NY 14853, USA;2. Department of Agricultural & Consumer Economics, University of Illinois, Urbana‐Champaign, Urbana, IL 61801, USA;3. Department of Agricultural Economics, Texas A&M University, Collage Station, TX 77843, USA |
| Abstract: | A number of problems in agricultural economics involve modeling joint distributions for which the assumption of multivariate normality may not be warranted. Yet, very little work has been conducted evaluating competing methods for modeling joint dependence. We develop a simulation framework to evaluate the bias and efficiency impacts of copula choice in the context of evaluating county‐to‐farm basis risk. The results suggest significant differences in performance across various copulas and approaches. The findings have important implications for risk analysis, insurance, and policy modeling problems in agriculture regarding the selection of method to model dependence among random variables. |
| Keywords: | Q00 Q10 Q14 Copulas GRIP basis risk Crop insurance rating efficiency Kernel copula Iman and Conover procedure Phoon Quek and Huang Procedure |