A Comparative Evaluation of Yield Risk Reductions with Alternative Crop Insurance Programs in Manitoba

Abstract

Three crop insurance programs are evaluated in terms of their effectiveness of yield risk reductions for 371 Manitoba farms. The examination is first conducted with a proposed index method, with which the relative yield risk reduction magnitude is calculated and compared for each farm under each alternative program. The generalized stochastic dominance (GSD) methodology is also used to provide an alternative analytical framework in analyzing producers’relative preferences among those alternatives by comparing the net yield distributions generated by each program for each farm. The results suggest that, given an actuarially sound basis, the filly individualized crop insurance (FI) program is the most favorable choice for risk‐averse producers. The area coverage and individual indemnity program (IA) is generally the second best option. The full area crop insurance program (FA) is least preferred by risk‐averse farmers.