The impact of spatial interpolation techniques on spatial basis risk for weather insurance: an application to forage crops
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Date
2016
Authors
Turenne, Daniel
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Abstract
Weather index insurance has become a popular subject in agricultural risk management.
Under these policies farmers receive payments if they experience adverse weather for
their crops. Spatial basis risk is the risk that weather observed at stations does not correspond
to the weather experienced by the farmer. The objective of this research is to
determine to what extent spatial basis risk can be impacted by the interpolation technique
used to estimate weather conditions. Using forage crops from Ontario, Canada, as
an example, a temperature based insurance index is developed. Seven different interpolation methods are used to estimate indemnities for forage producers. Results show that
the number of weather stations in the interpolation area has a larger impact on spatial
basis risk than the choice of interpolation technique. For insurers wishing to implement
this type of insurance, more focus should be placed on increasing the number of available
weather stations.
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Keywords
Forage insurance, Kriging, Spatial interpolation, Basis risk, Crop insurance