Practical Issues in the Econometric Evaluation of Agricultural Policy

Apr 1, 2014, 11:00am - 12:30pm

Barry K. Goodwin, William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University and President-elect of the Agricultural & Applied Economics Association, will present on April 1st in Room 105 of the Agricultural Administration Building (2120 Fyffe Road) as part of the AEDE Applied Economics Seminar Series. His presentation will focus on his research: "Practical Issues in the Econometric Evaluation of Agricultural Policy."
Abstract: The federal crop insurance program has been a major xture of US agricultural policy since the 1930s. The program continues to grow in size and prominence and now represents the most prominent farm policy instrument, accounting for more government spending than any other farm program. The 2014 Farm Bill further expanded the crop insurance program and introduced a number of new county-level, revenue insurance plans. In 2013, over $123 billion in crop value was insured under the program. Crop revenue insurance, first introduced in the 1990s, now accounts for nearly 70% of the total liability in the program. The plans cover losses that result from a revenue shortfall that can be triggered by multiple, dependent sources of risk - either low prices, low yields, or a combination of both. The actuarial practices currently applied in rating these plans essentially involve the application of a Gaussian copula model to the pricing of dependent risks. We evaluate the suitability of this assumption by considering a number of alternative copula models. In particular, we use combinations of pair-wise copulas of conditional distributions to model multiple sources of risk. We find that this approach is preferred by model fitting criteria in the applications considered here. We demonstrate that alternative approaches to modeling dependencies in a portfolio of risks may have signicant implications for the pricing of such risks.
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