Dermot J. Hayes, Sergio H. Lence and Chuck Mason
This study estimates the probability density function of the government’s net income from reinsuring crop insurance for corn, wheat, and soybeans. Based on 1997 data, it is…
Abstract
This study estimates the probability density function of the government’s net income from reinsuring crop insurance for corn, wheat, and soybeans. Based on 1997 data, it is estimated there is a 5% probability that the government will need to reimburse at least $1 billion to insurance companies, and that the fair value of the government’s reinsurance services to insurance firms equals $78.7 million. In addition, various hedging strategies are examined for their potential to reduce the government’s reinsurance risk. The risk reduction achievable by hedging is appreciable, but use of derivative contracts alone is clearly no panacea.
Details
Keywords
Chuck Mason, Dermot J. Hayes and Sergio H. Lence
This study develops a method to estimate the probability density function of the Federal Risk Management Agency’s (RMA’s) net income from reinsuring crop insurance for corn…
Abstract
This study develops a method to estimate the probability density function of the Federal Risk Management Agency’s (RMA’s) net income from reinsuring crop insurance for corn, wheat, and soybeans. When calibrated using 1997 data, results from the advocated method show that in 1997 there was a 5% probability RMA would have had to reimburse at least $1 billion to insurance companies, and the fair value of RMA’s insurance services to insurance firms in 1997 was $78.7 million.
Details
Keywords
Nicholas D. Paulson, Chad E. Hart and Dermot J. Hayes
While the demand for weather‐based agricultural insurance in developed regions is limited, there exists significant potential for the use of weather indexes in developing areas…
Abstract
Purpose
While the demand for weather‐based agricultural insurance in developed regions is limited, there exists significant potential for the use of weather indexes in developing areas. The purpose of this paper is to address the issue of historical data availability in designing actuarially sound weather‐based instruments.
Design/methodology/approach
A Bayesian rainfall model utilizing spatial kriging and Markov chain Monte Carlo techniques is proposed to estimate rainfall histories from observed historical data. An example drought insurance policy is presented where the fair rates are calculated using Monte Carlo methods and a historical analysis is carried out to assess potential policy performance.
Findings
The applicability of the estimation method is validated using a rich data set from Iowa. Results from the historical analysis indicate that the systemic nature of weather risk can vary greatly over time, even in the relatively homogenous region of Iowa.
Originality/value
The paper shows that while the kriging method may be more complex than competing models, it also provides a richer set of results. Furthermore, while the application is specific to forage production in Iowa, the rainfall model could be generalized to other regions by incorporating additional climatic factors.
Details
Keywords
Xiaoguang Feng and Dermot Hayes
Portfolio risk in crop insurance due to the systemic nature of crop yield losses has inhibited the development of private crop insurance markets. Government subsidy or reinsurance…
Abstract
Purpose
Portfolio risk in crop insurance due to the systemic nature of crop yield losses has inhibited the development of private crop insurance markets. Government subsidy or reinsurance has therefore been used to support crop insurance programs. The purpose of this paper is to investigate the possibility of converting systemic crop yield risk into “poolable” risk. Specifically, this study examines whether it is possible to remove the co-movement as well as tail dependence of crop yield variables by enlarging the risk pool across different crops and countries.
Design/methodology/approach
Hierarchical Kendall copula (HKC) models are used to model potential non-linear correlations of the high-dimensional crop yield variables. A Bayesian estimation approach is applied to account for estimation risk in the copula parameters. A synthetic insurance portfolio is used to evaluate the systemic risk and diversification effect.
Findings
The results indicate that the systemic nature – both positive correlation and lower tail dependence – of crop yield risks can be eliminated by combining crop insurance policies across crops and countries.
Originality/value
The study applies the HKC in the context of agricultural risks. Compared to other advanced copulas, the HKC achieves both flexibility and parsimony. The flexibility of the HKC makes it appropriate to precisely represent various correlation structures of crop yield risks while the parsimony makes it computationally efficient in modeling high-dimensional correlation structure.
Details
Keywords
Wenwen Xi, Dermot Hayes and Sergio Horacio Lence
The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical…
Abstract
Purpose
The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical realized variance and the corresponding risk-neutral expected variance.
Design/methodology/approach
The authors compute variance risk premiums using historical derivatives data. The authors use regression analysis and time series econometrics methods, including EGARCH and the Kalman filter, to analyze variance risk premiums.
Findings
There are moderate commonalities in variance within the agricultural sector, but fairly weak commonalities between the agricultural and the equity sectors. Corn and soybean variance risk premia in dollar terms are time-varying and correlated with the risk-neutral expected variance. In contrast, agricultural commodity variance risk premia in log return terms are more likely to be constant and less correlated with the log risk-neutral expected variance. Variance and price (return) risk premia in agricultural markets are weakly correlated, and the correlation depends on the sign of the returns in the underlying commodity.
Practical implications
Commodity variance (i.e. volatility) risk cannot be hedged using futures markets. The results have practical implications for US crop insurance programs because the implied volatilities from the relevant options markets are used to estimate the price volatility factors used to generate premia for revenue insurance products such as “Revenue Protection” and “Revenue Protection with Harvest Price Exclusion.” The variance risk premia found implies that revenue insurance premia are overpriced.
Originality/value
The empirical results suggest that the implied volatilities in corn and soybean futures market overestimate true expected volatility by approximately 15 percent. This has implications for derivative products, such as revenue insurance, that use these implied volatilities to calculate fair premia.
Details
Keywords
Dermot Breslin, Stephen Dobson and Nicola Smith
Understanding and predicting the behaviours of households within a community is a key concern for fire services as they plan to deliver effective and efficient public services. In…
Abstract
Purpose
Understanding and predicting the behaviours of households within a community is a key concern for fire services as they plan to deliver effective and efficient public services. In this paper, an agent-based modelling approach is used to deepen understandings of changing patterns of behaviour within a community. The paper aims to discuss this issue.
Design/methodology/approach
This “Premonition” model draws on historical data of fire incidents and community interventions (e.g. home safety checks, fire safety campaigns, etc.) collated by South Yorkshire Fire and Rescue, UK, to unpack patterns of changing household behaviours within the region.
Findings
Findings from simulations carried out using the Premonition model, show that by targeting close-knit groups of connected households, the effectiveness of preventative interventions and utilisation of associated resources is enhanced. Furthermore, by repeating these interventions with the same households over time, risk factors within the wider area are further reduced.
Originality/value
The study thus shows that annual repeat visits to fewer and more targeted high-risk postcodes increase the overall reduction in risk within an area, when compared with a scattered coverage approach using one-off (i.e. not repeat) household visits within a postcode.
Details
Keywords
Dermot McCarthy, Phyllis Alexander and Young Jung
This study aims to examine the interrelationship between the employee public service motivations (PSM), organisational corporate social responsibility (CSR) objectives and…
Abstract
Purpose
This study aims to examine the interrelationship between the employee public service motivations (PSM), organisational corporate social responsibility (CSR) objectives and employee organisational commitment amongst accounts department staff in public service organisations.
Design/methodology/approach
Survey data is taken from tax accountants and accounts administration staff (n = 285) across seven South Korean state-owned enterprises involved in the provision of various public services (utilities, infrastructure, energy and housing). Structural equation modeling techniques are used to conduct mediation and moderated-mediation analysis.
Findings
Results show that both employee PSM and organisational CSR are significant in determining organisational commitment, especially where they result in value congruence. The authors also find that perceived levels of internal and external CSR are significant in moderating the impact of different dimensions of PSM.
Practical implications
As accounting in public service organisations faces growing professional and commercial demands to address stakeholder needs, the need for organisations to retain accounts staff with the necessary motivations is vital. The findings highlight the importance of value congruence in achieving long-term employee organisational commitment and the need for the CSR objectives of organisations to take account of both external and internal stakeholders.
Originality/value
Little research has examined the relationship between PSM and organisational commitment amongst accounting staff in the quasi-public/private state-owned enterprise sector. This despite the level of organisational (e.g. introduction of new public management approach) and professional change (e.g. regulatory changes) experienced over the past two decades and the importance of the sector in public service provision.
Details
Keywords
LIBRARIANS in Britain stand at the threshold of great possibilities. Having passed through the ages of the ecclesiastical library, the rich collector's private library, the…
Abstract
LIBRARIANS in Britain stand at the threshold of great possibilities. Having passed through the ages of the ecclesiastical library, the rich collector's private library, the academic institutional library, and the rate‐supported public library—all general libraries —they have reached the age of the special library. The next will be that of the co‐ordinated, co‐operative library service.
Chengyan Yue, Stéphan Marette and John C. Beghin
We investigate producers’ choice between geographical indications (GI) and brand advertising (BA) as pure marketing strategies to convey information to consumers. Producers also…
Abstract
We investigate producers’ choice between geographical indications (GI) and brand advertising (BA) as pure marketing strategies to convey information to consumers. Producers also decide whether or not to select an effort level for improving the quality of their products. We identify conditions under which GI and BA emerge with and without quality effort, depending on the relative costs and effectiveness of marketing strategies and quality improvement. Beyond the conventional equilibrium cases of GI-no-quality-effort and BA-with-quality-effort, we identify several other equilibrium strategies. Under plausible parameter characterization, and in spite of the free-riding problem of collective reputation, producers choose GI and quality improvement efforts at equilibrium. This occurs when the cost of marketing is high, the relative cost of quality effort is low relative to the former, and when the effectiveness of marketing promotions is low. BA without quality improvement also emerges as an equilibrium strategy for the opposite cost structure (low cost of promotion, high cost of effort relative to promotion, and higher effectiveness of promotion). Finally, the joint selection of both instruments BA and GI is examined. We motivate and illustrate our analysis with the European and New-World wine industries.
Details
Keywords
RETROSPECT is natural at the beginning of a new library year. All over the world of libraries of all kinds the shadow of the general depression has fallen; more heavily perhaps in…
Abstract
RETROSPECT is natural at the beginning of a new library year. All over the world of libraries of all kinds the shadow of the general depression has fallen; more heavily perhaps in the United States than here. It is a testing time which has made the enemies of libraries vocal and has also fortunately roused their advocates. On balance, optimism may prevail; and in that faith we wish our readers a happy new year.