Papers on agricultural insurance and farm productivity

This dissertation is composed of two distinct papers. The first one is a theoretical paper on agricultural insurance pricing. The second paper studies model selection in stochastic frontier analysis with an application to maize production in Kenya.;The first paper reviews existing agricultural insurance valuation models and provides a new model. The new model takes explicit account of the non-diversifiable market risk inherent in offering insurance contracts, and demonstrates how capital markets can facilitate risk spreading and diversification. The analysis suggests that present value models may provide appropriate insurance valuations in some circumstances, but the standard Black-Scholes model has deficiencies for pricing agricultural insurance. Other existing methods for pricing the market risk in agricultural insurance contracts are logically consistent and potentially useful. However, the heterogeneous agent equilibrium model developed here is easy to use, amenable to empirical estimation, and provides a simple and intuitive way to value market risk in agricultural insurance contracts.;The second paper shows how to estimate the quantitative magnitude of partial effects of exogenous firm characteristics on technical efficiency (along with their standard errors) under a range of popular stochastic frontier model specifications. An R2-type measure is also derived to summarize the overall explanatory power of the exogenous factors on firm inefficiency. The paper also applies a recently developed model selection procedure to choose among alternative stochastic frontier specifications using data from household maize production in Kenya. The magnitude of estimated partial effects of exogenous household characteristics on inefficiency turns out to be very sensitive to model specification, and the model selection procedure leads to an unambiguous choice of best model. Bootstrapping is used to provide evidence on the size and power of the model selection procedure. The empirical application also provides further evidence on how household characteristics influence technical inefficiency in maize production in developing countries.