AN EMPIRICAL-ANALYSIS OF THE DEMAND FOR MULTIPLE PERIL CROP INSURANCE - REPLY

Barnett and Skees' interesting comment raises two objections to my analysis of the demand for multiple peril crop insurance. The first is that my contention that across-the-board premium increases could "possibly raise overall industry loss-ratios" (p. 434) is incorrect. The second is that the demand specification that uses liability per planted acre as a measure of insurance purchases is incorrect because it imposes the assumption of equal expected yields across counties. I appreciate their comments and the opportunity to reply. Barnett and Skees' comments contribute to the ongoing policy debate regarding the future of crop insurance and disaster relief programs and should stimulate further discussion. However, the points raised in their first objection may be misleading to policy makers' efforts to improve the actuarial performance of the crop insurance program. The arguments put forth in their second criticism are incorrect. © 1994 American Agricultural Economics Association.