Optimal producer behavior in the presence of area‐yield insurance is studied. The producer's optimal production and insurance choices are characterized. The effect of the provision of area‐yield insurance on production patterns is studied, and sufficient conditions for the provision of area‐yield insurance to increase the riskiness of the individual producer's decisions are derived. A separation result is derived for area‐yield insurance contracts and stochastic technologies.
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Chambers et al. (2002) studied this question.
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