This paper uses weather insurance to price irrigation cost insurance contracts for agricultural crops. County-level yield data are used to estimate the probability distributions of irrigated and dryland wheat yields. A micro-economic model of production is developed that illustrates the relationship between rainfall, crop yields, costs of irrigation and profits. Alternative micro-econometric models are estimated to establish the effects of weather variables on wheat yield on dry land, and on the costs of irrigation. Weather-based insurance premiums are estimated using Monte Carlo simulations.
Edouard B. Mafoua-Koukebene and Calum G. Turvey. "Pricing Weather-Based Irrigation Cost Insurance: Theory and Applications." Proceedings of the New York State Economics Association. vol. 1, October 2008, p. 73-83
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