Optimal Producer Behavior in the Presence of Area-Yield Crop Insurance

Optimal producer behavior in the presence of area-yield insurance is studied. The producer's optimal production and insurance choices are characterized. The effect of the provision of area-yield insurance on production patterns is studied, and sufficient conditions for the provision of area-yield insurance to increase the riskiness of the individual producer's decisions are derived. A separation result is derived for area-yield insurance contracts and stochastic technologies. Copyright 2002, Oxford University Press.