Spatial Models for Estimating Agricultural Probability of Loss: Implications for Risk Analysis in Agriculture

• Activity Number: 253
• Type: Contributed
• Date/Time: Monday, August 4, 2014 : 2:00 PM to 3:50 PM
• Sponsor: Section on Risk Analysis
• Author(s): Ying Zhu*+
• Companies: North Carolina State University
• Keywords: spatial autogressive model ; risk analysis ; crop insurance

Abstract

Systemic risk is one of the leading causes for the failure of the crop insurance market. This study analyzes crop yield risk by exploring the spatial dependence structure of crop yields. We focus on modeling the spatial correlations between crop yields across space (both in distance and direction). Various spatial autoregressive models are explored to account for county-level dependence of crop yields. The information of the spatial dependence of yield risk both in size and direction will help the construction of a reinsurance plan and better risk management programs for protecting agricultural producers from systemic yield risks. The contribution of this study to the current literature is to propose a spatial model of the crop yield loss which incorporates the directional effects and thus will be a more accurate measure of systemic risk.