precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

hot stuff index insurance for indian pepper growers summary we simulate the impact of a joint price and yield index insurance on the basis of a small representative panel data set of indian smallholder pepper growers affordable and feasible index insurance reduces crop revenue risk to around 68 of its original level while a reduction to 50 of this level can be achieved with ideal insurance basis risk is large for only a small fraction of farm households depending on risk aversion 5 30 of farm households is willing to pay for index insurance increasing to 12 50 with a 50 premium reduction opportunity costs of consumption smoothing in the form of lower productivity levels suggest potential welfare gains of specialization with insurance

effects of energy performance certificates on investment a quasi natural experiment approach incomplete information may be one reason why some households do not invest in energy efficiency even though it would benefit them to do so energy performance certificates epcs have been promoted

why farmers sometimes love risks evidence from india abstractusing a unique data set collected among farmers in india s semiarid tropics we document the surprising prevalence of risk taking behavior in the face of realistically framed high stakes gambles we hypothesize that this apparently anomalous behavior is due to a combination of credit constraints and nonconvexities in production in particular the high stakes nature of the gambles creates the potential for a farmer to undertake a productive investment that would normally be unaffordable and thereby move to a permanently higher level of income we show that the degree to which farmers are willing to accept risk in return for this opportunity appears to relate in an intuitive way to their current agricultural production technology as well as the demographic composition of their household

optimum area yield crop insurance cet article determine le contrat optimal d assurance dont l indemnite depend du rendement agrege sur recoltes d un bassin de production le schema optimal d assurance est base sur le coefficient individuel de regression qui mesure la sensibilite du rendement agrege a des variations du rendement agrege une indemnite est versee lorsque le rendement agrege est inferieur superieur a un rendement critique si le coefficient de regression est positif negatif le contrat optimal contient une franchise evanescente si le coefficient de regression est superieur a l unite

hedging with crop yield futures a mean variance analysis this investigation into the use of new chicago board of trade yield futures to manage price and yield risks shows that a risk minimizing firm can reduce its variance of profit by hedging in both markets compared to hedging in price futures only the greater the variance of the contract underlying yield the less effective the two instrument hedge hedging effectiveness of the dual strategy also depends on the price and yield bases and the effect of a change in either basis depends on whether the established crop yield futures position is short or long

insuring eggs in baskets the vast majority of crop and revenue insurance policies sold in the united states are single crop policies that insure against low yields or low revenues for each crop grown on a particular farm this practice of insuring one crop at a time runs counter to the traditional risk management practice of diversifying across several enterprises to avoid putting all of ones eggs in a single basket this paper examines the construction of whole farm crop revenue insurance programs to include livestock the whole farm insurance product covers crop revenues from corn and soybeans and livestock revenues from hog production the results show that at coverage levels of 95 percent or lower the fair insurance premiums for this product on a well diversified iowa hog farm are far lower than the fair premiums for the corn crop alone on the same farm the calculation of premium rates for the whole farm insurance product is derived from a method for imposing correlations first proposed by iman and conover in 1982

revenue insurance purchase decisions of farmers the objective of this study is to evaluate farm household and financial characteristics of cash grain farmers decisions of whether to purchase revenue insurance using farm level data these characteristics were identified by estimating a logit model of revenue insurance purchase decisions by farm operators results indicate that farm operators with the ability to self insure through accumulation of sufficient wealth reserves measured in terms of the ratio of debts to assets operators with off farm income and participation in production and marketing contracts are more likely to pursue these strategies as a substitute for federal revenue insurance programmes further study finds that older and wealthy cash grain farmers are less likely to buy revenue insurance

the effects of crop yield insurance designs on farmer participation and welfare the performance of individual farm yield and area yield crop insurance programs is evaluated for a representative iowa corn farm using numerical optimization of expected utility and simulation techniques several different contract design features are studied including the nature of the yield index which triggers insurance payouts alternative restrictions on coverage levels and alternative pricing structures performance is evaluated in terms of impacts on farmer participation and welfare and is examined in a portfolio setting where futures and options are also available to farmers the relative performance of different crop insurance designs is found to be particularly sensitive to restrictions on coverage levels the size of premium loadings and the degree to which individual farm yields are correlated with area yields

hedging with price and output uncertainty abstract this paper extends mckinnon s analysis of hedging with price and output uncertainty to the general case where preferences are not necessarily quadratic and probability distribution not necessarily normal

doing well by doing good green office buildings this paper provides the first credible evidence on the economic value of the certification of green buildings in the commercial sector value derived from impersonal market transactions rather than engineering estimates we match publicly available information on the addresses of energy star and leed rated office buildings to a commercial data source detailing the characteristics of u s office buildings and their rental rates we analyze the micro data on 694 certified green buildings and on 7489 other office buildings located within a quarter mile of the certified buildings we find systematic evidence that rents for green offices are about two percent higher than rents for comparable buildings located nearby effective rents i e rents adjusted for the occupancy levels in office buildings are about six percent higher in green buildings than in comparable office buildings nearby at prevailing capitalization rates conversion of the average non green building to an equivalent green building would add more than 5 million in market value these results are robust to the statistical models employed

second best insurance contract design in an incomplete market the optimal form of insurance contracts for multiple risks is examined a well known result in the literature is that under fairly general conditions an insurance policy with a deductible for aggregate losses is optimal real world markets however are typically incomplete in that they require separate contracts for separate loss exposures for instance insurable damage to one s home is not generally allowed to affect the insurance indemnity for unrelated insurable damage to one s automobile we show that separate deductibles are second best optima in this setting we compare the indemnity provided in this second best setting with first best solutions the effect of second best contracts on the individual s total insurance demand is also examined

budgetary and producer welfare effects of revenue insurance legislation passed in 1996 changed the way the u s federal government acts to reduce risks faced by u s crop products the authors compare the new alternative forms of revenue insurance to the 1990 deficiency payment program and to a no program alternative they estimate the effects of the alternative polices on the acreage allocations of a representative farm on the expected government cost and on producer welfare simulation results indicate that a revenue insurance scheme that guarantees 75 percent of expected revenue to risk averse produced could provide approximately the same level of benefits as the 1990 program at as little as one fourth the cost

the design of an optimal insurance policy almost every phase of economic behavior is affected by uncertainty the economic system has adapted to uncertainty by developing methods that facilitate the reallocation of risk among individuals and firms the most apparent and familiar form for shifting risks is the ordinary insurance policy previous insurance decision analyses can be divided into those in which the insurance policy was exogenously specified see john gould jan mossin and vernon smith and those in which it was not see karl borch 1960 and kenneth arrow 1971 1973 in this paper the pioneering work of borch and arrow the derivation of the optimal insurance contract form from the model is synthesized and extended

energy performance certificates informing the informed or the indifferent energy performance certificates epcs are intended to provide tenants and buyers with reliable information about the energy performance of buildings as improved energy performance may increase building sale prices and rents the epcs are supposed to generate incentives for owners to invest in energy efficiency the empirical evidence for a price premium associated with energy labels is however inconclusive and partly contradictory by utilizing data from the norwegian housing market we reproduce the positive price premium effect found in earlier studies however when we check these results by taking advantage of the fact that the introduction of a mandatory energy certification system represents a quasi natural experiment we find no evidence of a price premium on the contrary we present evidence that there is no effect of the energy label itself

designing optimal crop revenue insurance when the indemnity schedule is contingent on the farmer s price and individual yield an optimal crop revenue insurance contract depends only on the farmer s gross revenue however this design is not efficient if as is the case with available contracts the coverage function is based on imperfect estimators of individual yield and or price the producer s degree of prudence and the extent of basis risks have important influences on the optimal indemnity schedule in this broader context optimal protection is not provided by available u s crop insurance contracts and may include combinations of revenue insurance yield insurance futures and options contracts

the impacts of energy efficiency policies meta analysis abstract this paper attempts to quantitatively summarize the existing empirical evidence on the effects of energy efficiency policies on energy demand and on the price of associated durable goods as well as to identify the main factors that systematically affect the estimated impacts to this end a meta regression analysis of the effects of energy efficiency policies is carried out on the basis of an extensive review of the existing literature selecting those studies that analyze the impact of energy efficiency policies with respect to a business as usual setting taking into account the econometric problems associated with this type of analysis intra class correlation cross sectional dependence publication bias in pursuit of robust outcomes the results show that the studies analyzing the effects of energy efficiency policies estimate a significant impact of these policies on energy demand 10 5 8 8 and the price of related durable goods 7 9 6 the main factors that influence results are the policy instrument the targeted sector the type of country the analyzed period the consideration of free riders and the type of analysis data and publication energy demand and the sector and analyzed period price of durables

insuring against losses from transgenic contamination the case of pharmaceutical maize concerns about the risk of food supply contamination have limited the development and commercialization of certain pharmaceutical plants this article develops an insurance pricing model that helps translate these concerns into a cost benefit analysis the model first estimates the physical dispersal of maize pollen subject to a number of weather parameters this distribution is then validated with the limited amount of currently available field trial data the physical distribution is then used to calculate the premium for a fair valued insurance policy that would fund the destruction of possibly contaminated fields the flexible framework can be readily adapted to other crops management practices and regions

the hedging role of options and futures under joint price basis and production risk this paper analyzes the optimal production and hedging decisions for firms facing futures price basis and production risk assuming futures and options can be used using constant absolute risk aversion utility and normal distributions the authors derive an exact solution and show that joint production and price risk lead to a hedging role for options risk averse firms that can use each hedging instrument will generally have higher expected output using iowa data for soybeans the parameters of the joint distribution of future prices cash prices and yields are estimated and the results are used to approximate optimal hedging decisions for soybean producers copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

safety nets and index based insurance historical assessment and semiparametric simulation for northern ghana abstract this article considers index based safety nets aimed at assuring participants a minimum income at the village level set by a prespecified poverty line the participating villages collectively manage a pooled budget offering an index based per capita indemnity to the villages financed from a uniform per hectare premium possibly supplemented by an external subsidy the scheme involves implicit cross subsidies in favor of the poorest villages otherwise it focuses on covariate risk leaving it to mutual arrangements to deal with intravillage idiosyncratic risk its design is obtained from a risk minimizing model for the collective of villages with constraints of two kinds the first is the budget that ensures that payments receive adequate finances the second concerns the set of admissible schedules requiring that payments are triggered by a flexible function of only a few variables for this we propose a semiparametric form from kernel learning noting its capacity to combine a priori on the i

evaluating the performance of us credit unions credit unions are small cooperative not for profit institutions which distinguishes them from other financial intermediaries in this study we conduct a performance evaluation of credit unions the criteria respect the unique organizational and institutional features of credit unions without losing sight of the fact that they must compete with other financial intermediaries we use nonparametric nonstochastic techniques to measure performance and we use parametric stochastic techniques to attribute performance variation to features of credit unions and their operating environment our sample consists of two thirds of all active credit unions in 1990