English, Article edition: Portfolio effects and the willingness to pay for weather insurances Oliver Musshoff; Norbert Hirschauer; Martin Odening

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Bookmark: http://trove.nla.gov.au/version/382
Physical Description
  • article
Language
  • English

Edition details

Title
  • Portfolio effects and the willingness to pay for weather insurances
Author
  • Oliver Musshoff
  • Norbert Hirschauer
  • Martin Odening
Physical Description
  • article
Notes
  • Since the mid-1990s, agricultural economists have discussed the relevance of index-based insurances, also called “weather derivatives”, as hedging instruments for volumetric risks in agriculture. Motivated by the question of how weather derivatives should be priced for agricultural firms, this paper describes an extended risk-programming model which can be used to determine farmers’ willingness to pay (demand function) for weather derivative’s farm-specific risk reduction capacity and the individual farmer’s risk acceptance. Applying it to the exemplary case of a Brandenburg farm reveals that even a highly standardized contract which is based on the accumulated rainfall at the capital’s meteorological station in Berlin-Tempelhof generates a relevant willingness to pay. Our findings suggest that a potential underwriter could even add a loading on the actuarially fair price which exceeds the level of traditional insurances. Since translation costs are low compared to insurance contracts, this finding indicates there may be a relevant trading potential.
  • Production program planning, Rainfall risk, Under risk, Weather derivatives, Willingness to pay
  • RePEc:eme:afrpps:v:68:y:2008:i:1:p:83-97
Language
  • English
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