A STOCHASTIC MODEL OF DISASTER PAYMENTS UNDER THE 1973 FARM ACT

A stochastic computer simulation model is used to estimate disaster payments under the Agriculture and Consumer Protection Act of 1973. The model uses a random yield generator and actuarial techniques. Simulated payments under 1976 program parameters and stochastic yields are estimated at $300 million, compared with actual payments of $522 million in 1974 and $262 million in 1975. A payment greater than $522 million will probably not occur again under current conditions. The $262 million level is closer to normal expectations. The model also evaluates the impact of revisions in the payment program, as well as the effect of uncertain crop yields.