Optimizing Crop Insurance under Climate Variability.

This paper studies the selection of optimal crop insurance under climate variability and fluctuating market prices. A model was designed to minimize farmers’ expected losses (including insurance costs) while using the conditional-value-at-risk measure to acquire the risk-aversion level. The application of the model was illustrated by studying a farm with two crops (cotton and peanut) in Jackson County, Florida. The climate variability was caused by ENSO phenomenon. Crop-insurance contracts with minimized losses were 75% actual production history (APH) during El Niño and neutral years and 65% APH during La Niña years for peanut and 75% APH in all ENSO phases for cotton. In addition, risk-averse farmers could select 75% APH for peanut during La Niña years as a means of attaining less expected loss. [ABSTRACT FROM AUTHOR]