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Area Yield Insurance (AYI) differentiates itself from the other more popular yield insurance schemes in its ability to reduce administrative costs, and decrease both adverse selection and moral hazard. These basic characteristics make AYI a candidate for considering a yield insurance scheme within Australia. This study simulates AYI indemnities and premium rates for five shires separated into two groups, based on geographical location. Through a set of coverage levels and farm yield variability, risk reduction and certainty equivalent measures are found. Adequacy of these measures are addressed though sensitivity analysis across a wide range of variables. Basis risk issues are confronted and brought to the forefront through correlation analysis of both acrossHshire and farmHshire yields. Results provide positive notions towards effectiveness in yield protection for Australian producers, however under the immobilizing assumption of government or external support. |
