Expanding on Basis Risk Estimates for Pasture, Rangeland, and Forage Insurance

Authors

Ryan Feuz, Utah State UniversityFollow
Ryan Bosworth, Utah State UniversityFollow
Ryan Larsen, Utah State UniversityFollow
Royce Larsen, University of California, Agriculture and Natural ResourcesFollow
Sean Klein, Utah State UniversityFollow
Matthew W.K. Shapero, University of California, Agriculture and Natural ResourcesFollow
Devii R. Rao, University of California, Agriculture and Natural ResourcesFollow
LynneDee Althouse, Althouse and Meade, Inc.Follow
Karl StribyFollow

Abstract

Basis risk or residual risk arising from disparity between an index’s estimate of losses and actual losses is inherent in index-based insurance products. We approximate basis risk as the false negative probability (FNP) within pasture, rangeland, and forage (PRF) rainfall index insurance for the south-central coastal region of California. We estimate the FNP on average that at least one of two selected coverage intervals will fail to provide an indemnity when a loss is realized at 48%. The average FNP is reduced to only 11% when considering whether both selected intervals fail to provide an indemnity when a loss is realized.

Recommended Citation

Feuz, Ryan; Bosworth, Ryan; Larsen, Ryan; Larsen, Royce; Klein, Sean; Shapero, Matthew W.K.; Rao, Devii R.; Althouse, LynneDee; and Striby, Karl (2023) "Expanding on Basis Risk Estimates for Pasture, Rangeland, and Forage Insurance," Journal of Applied Farm Economics: Vol. 6 : Iss. 1, Article 1.
DOI: 10.7771/2331-9151.1068
Available at: https://docs.lib.purdue.edu/jafe/vol6/iss1/1