Evaluating Yield Models for Crop Insurance Rating

Generated crop insurance rates depend critically on the distributional assumptions of the underlying crop yield loss model. Using farm level corn yield data from 1972-2008, we revisit the problem of examining in-sample goodness-of-fit measures across a set of flexible parametric, semi-parametric, and non-parametric distributions. Simulations are also conducted to investigate the out-of-sample efficiency properties of several competing distributions. The results indicate that more parameterized distributional forms fit the data better in-sample due to the fact that they have more parameters, but are generally less efficient out-of-sample–and in some cases more biased–than more parsimonious forms which also fit the data adequately, such as the Weibull. The results highlight the relative advantages of alternative distributions in terms of the bias-efficiency tradeoff in both in- and out-of-sample frameworks.