Optimal Insurance Against Climatic Experience |
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| Authors: | Olivier Mahul |
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| Affiliation: | Department of Economics, Institut National de la Recherche Agronomique (INRA), Rennes, France |
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| Abstract: | An optimal insurance contract against a climatic risk is derived in the presence of an uninsurable and dependent aggregate production risk. The optimal design depends on the stochastic dependency between both sources of uncertainty and on the producer's attitude towards risk, especially on his prudent behavior. Rational weather insurance purchasing decisions are also derived. The prudent producer responds to actuarially fair weather insurance by increasing his exposure towards risk. |
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| Keywords: | agricultural insurance background risk climatic risk prudence stochastic dominance weather derivatives |
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