Abstract
This article focuses on the effect of differing heteroscedasticity assumptions on derived premium rates of area‐yield crop insurance. Tests of the proportional and absolute heteroscedasticity assumptions are conducted using both in‐sample and out‐of‐sample measures. Our results suggest that arbitrarily imposing a specific form of heteroscedasticity or homoscedasticity in insurance rate calculations limits actuarial soundness. Our results have practical implications for the federal crop insurance programs, as we reject the traditional rating assumptions for many cotton regions and lower‐yielding/higher‐risk corn and soybean counties but not in the heart of the Cornbelt.
Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
