Barry Barnett - Academia.edu (original) (raw)

Papers by Barry Barnett

Research paper thumbnail of Victor Melgar's Coffee Farm

This case study focuses on a coffee farmer in Guatemala who, given current low coffee prices, is ... more This case study focuses on a coffee farmer in Guatemala who, given current low coffee prices, is worried about his ability to maintain the family tradition of coffee production. He wonders whether the current low prices are just another of the periodic downturns in the volatile coffee market or whether the market is experiencing structural changes that will have long-term implications. In this case, the farmer is presented with three alternatives, including continuing to produce and market commodity coffee. The other alternatives involve changes in production and/or marketing practices intended to increase profit margins.

Research paper thumbnail of GPS, Inc.: A Case of Investment under Uncertainty

Review of Agricultural Economics, 2004

Johnny Williams, president of Global Positioning Solutions, Inc., is considering entering the mar... more Johnny Williams, president of Global Positioning Solutions, Inc., is considering entering the market for providing remotely sensed imagery and associated prescriptions to farmers. A large initial investment is required and additional investments will be needed if the business expands. Johnny is faced with trying to predict demand for a product that is not currently available in his market area. The

Research paper thumbnail of Behavioral weather insurance: Applying cumulative prospect theory to agricultural insurance design under narrow framing

PLOS ONE, May 1, 2020

Experience across many countries shows that, without large premium subsidies, crop insurance upta... more Experience across many countries shows that, without large premium subsidies, crop insurance uptake rates are generally low. In this article, we propose to use the cumulative prospect theory to design weather insurance products for situations in which farmers frame insurance narrowly as a stand-alone investment. To this end, we introduce what we call "behavioral weather insurance" whereby insurance contract parameters are adjusted to correspond more closely with farmers' preferences. Depending on farmers' preferences, we find that a stochastic multiyear premium increases the prospect value of weather insurance, while a zero deductible design does not. We suggest that insurance contracts should be tailored precisely to serve farmers' needs. This offers potential benefits for both the insurer and the insured.

Research paper thumbnail of Impacts of the SURE Standing Disaster Assistance Program on Producer Risk Management and Crop Insurance Programs

This research investigates the potential effects of the row crop provisions of the standing disas... more This research investigates the potential effects of the row crop provisions of the standing disaster assistance program (SURE) in the 2008 Farm Bill. Results suggest little impact on producer crop insurance purchase decisions, though the program does seem to provide an incentive for mid-level coverage. Payments under the program should be expected to differ considerably across geographic regions and levels of diversification, with the program providing the greatest benefit to undiversified producers in more risky production regions.

Research paper thumbnail of Impacts of government risk management policies on hedging in futures and options:LPM2 hedge model vs. EU hedge model

The main objective of this study is to compare the impacts of government payments and crop insura... more The main objective of this study is to compare the impacts of government payments and crop insurance policies on the use of futures and options measured from a downside risk hedge model with the impacts analyzed by the expected utility (EU) hedge model. Understanding the effects of government-provided risk management tools on the private market risk management tools, such as futures and options, provides value to both crop farmers and policy makers. Comparison of the impacts from the two hedge models shows that crop farmer will hedge less in futures under the LPM2 model than under the EU hedge model. This finding indicates that model misspecification is another reason for the phenomenon that farmers actually hedge less in futures than predicted by the EU model. From the perspective of exploring new research techniques, this study applied two relatively new simulation concepts, copula simulation and conditional kernel density approach, to make the simulation assumptions less restrict...

Research paper thumbnail of Ascs Program Yields: Policy Implications for Regional Resource Allocation and Crop Insurance

This paper addresses a number of issues with respect to ASCS program yields. In particular, resul... more This paper addresses a number of issues with respect to ASCS program yields. In particular, results from simple regression models suggest that ASCS yields reflect yields per harvested acre rather than yields per planted acre. These results have significant policy implications for both regional resource allocation and crop insurance.

Research paper thumbnail of The SURE Program and Its Interaction with Other Federal Farm Programs

We investigate potential effects of the Supplemental Revenue Assistance Payments (SURE) program i... more We investigate potential effects of the Supplemental Revenue Assistance Payments (SURE) program introduced in the 2008 Farm Bill. Results suggest little impact on optimal crop insurance purchase decisions, though the SURE program does seem to provide an incentive for mid-level insurance coverage. For producers in the price counter-cyclical payment (PCCP) program, SURE payments are actually higher (lower) when commodity prices are high (low). This is not the case for producers in the Average Crop Revenue Election (ACRE) program.

Research paper thumbnail of Yield Aggregation Impacts on a "Deep Loss" Systemic Risk Protection Program

Research paper thumbnail of Proposed Farm Bill Impact On The Optimal Hedge Ratios For Crops

Revenue insurance with shallow loss protection for farmers has been introduced recently. A common... more Revenue insurance with shallow loss protection for farmers has been introduced recently. A common attribute of most shallow loss proposals is that they would be area-revenue triggered. The impact on optimal hedge ratios of combining these shallow loss insurance proposals with deep loss farm-level insurance is examined. Since crop insurance, commodity programs and forward pricing are commonly used concurrently to manage crop revenue risk, the optimal combinations of these tools are explored. Numerical analysis in the presence of yield, basis and futures price variability is used to find the futures hedge ratio which maximizes the certainty equivalent of a risk averse producer. The results generally reveal a lower optimal hedge ratio with area-insurance than with individual insurance and show that STAX and ARC tend to slightly increase optimal hedge ratios.

Research paper thumbnail of Explaining Participation in Federal Crop Insurance

Research paper thumbnail of Developing Area-Triggered Whole Farm Revenue Insurance

Research paper thumbnail of Estimating Site-Specific Crop Yield Response using Varying Coefficient Models

This study estimates the site-specific crop yield response function using varying coefficient mod... more This study estimates the site-specific crop yield response function using varying coefficient models. It is widely recognized that the parameters of yield response function vary dramatically across space and over time. Previous studies usually capture this variability of response by using locational and time dummy variables. While that approach reveals the existence of the response variability, the exact pattern of the variability is unknown, and the capacity of ex ante prediction of such models are limited. This study takes a step forward to explicitly explain how the response varies with the actual site characteristic variables, such as soil, water, topography, weather, and other factors that are commonly available to producers. By using the varying coefficient model, the parameters of the response function are specified to change continuously with those site variables. Based on a simulation data set, the varying coefficient model is demonstrate to outperform the site-dummy model ...

Research paper thumbnail of Challenging Belief in the Law of Small Numbers

Introduction : The context of row crop risk management continues to grow more complex. While the ... more Introduction : The context of row crop risk management continues to grow more complex. While the magnitude of price and yield risk changes over time, the development of sophisticated risk management tools and complex government policies may improve growers’ ability to manage risk -- if these instruments are used correctly. Conversely, these instruments may actually increase risk exposure if used incorrectly. Gone are the days when growers had access only to individual yield insurance and national triggered price programs. In 1996, revenue insurance became available for many crop growers. For most major crops, the acreage covered by revenue insurance now far exceeds that covered by yield insurance. The 2008 farm bill created the complex risk policies of ACRE and SURE (Ubilava et al.). Mitchell et al. argue that ACRE, which subsumed multiple revenue risks and integrated with other risk instruments, was difficult for growers to understand and difficult for county USDA officials to impl...

Research paper thumbnail of Hedging the Price Risk Inherent in Revenue Protection Insurance

Journal of Agricultural and Applied Economics, 2021

Crop revenue insurance is unique, because it involves a guarantee subsuming yield risk and highly... more Crop revenue insurance is unique, because it involves a guarantee subsuming yield risk and highly systematic price risk. This study examines whether crop insurers could use options instead of, or in addition to, assigning policies to the Commercial Funds of the USDA Federal Crop Insurance Corporation (FCIC) as per the Standard Reinsurance Agreement (SRA) to hedge the price risk of revenue insurance policies. The behavioral model examines the optimal hedge ratio for a crop insurer with a book of business consisting of corn Revenue Protection (RP) policies. Results show that a mix of put and call options can hedge the price risk of the RP policies. The higher optimal hedge ratios of call options as compared to put options imply that the risk of increased liability due to upside price risk can be hedged using options better than downside price risk. This study also analyzed the combination of options with the SRA at 35, 50, and 75% retention levels. The zero optimal hedge ratios at eac...

Research paper thumbnail of Analyzing Producer Preferences for Counter-Cyclical Government Payments

Journal of Agricultural and Applied Economics, 2003

A dynamic-stochastic model is developed to evaluate preferences among alternative countercyclical... more A dynamic-stochastic model is developed to evaluate preferences among alternative countercyclical payment programs for representative farms producing corn or soybeans in Iowa and cotton or soybeans in Mississippi. Countercyclical payment programs are found to not necessarily be preferred to fixed payment programs.

Research paper thumbnail of Incentive compatibility in risk management of contagious livestock diseases

The economics of livestock disease insurance: concepts, issues and international case studies, 2006

This chapter emphasizes the importance of incentives when designing animal health policy or risk ... more This chapter emphasizes the importance of incentives when designing animal health policy or risk management instruments. An underlying theme and concern is that improperly designed insurance solutions could increase the disease risk problem for the entire livestock sector. The major challenge in designing disease insurance mechanisms is recognizing the conflict between encouraging producer herd health management and biosecurity measures while maintaining incentives for early disclosure of problems.

Research paper thumbnail of Understanding Regional Differences in Farm Policy Preferences

American Journal of Agricultural Economics, 2011

Research paper thumbnail of Investigating the Implications of Multi-Crop Revenue Insurance for Producer Risk Management

This study investigates the potential for alternative multi-crop revenue insurance designs in com... more This study investigates the potential for alternative multi-crop revenue insurance designs in comparison to single crop yield and revenue insurance designs. A non-parametric multi-crop insurance model is developed which subsumes the single crop designs. The results compare alternative designs in terms of rate levels and risk reduction gains for representative Mississippi producers.

Research paper thumbnail of Implications of Integrated Commodity Programs and Crop Insurance

Journal of Agricultural and Applied Economics

Moving from price-triggered to area revenue–triggered programs was perhaps the most common theme ... more Moving from price-triggered to area revenue–triggered programs was perhaps the most common theme among 2007 farm bill proposals. Area revenue–triggered commodity programs may make farm-level revenue insurance products seem redundant, raising questions about why the federal government should continue both programs. Area revenue–triggered programs would remove much of the systemic risk faced by producers. As a result, private sector insurers may be able to insure the residual risk without federal involvement. This paper examines the effects of moving to area revenue–triggered commodity programs with a focus on public policy issues that would likely arise.

Research paper thumbnail of Evaluating a Proposed Modification to Federal Crop Insurance

A proposed modification to the Federal Crop Insurance Program would allow crop producers to simul... more A proposed modification to the Federal Crop Insurance Program would allow crop producers to simultaneously purchase both a farm-level crop insurance policy and a supplemental county-level crop insurance policy. This study evaluates this proposal for representative cotton farms in Georgia. The goal is to test whether the additional risk protection provided by the supplemental policy is considered to be worth the additional cost.

Research paper thumbnail of Victor Melgar's Coffee Farm

This case study focuses on a coffee farmer in Guatemala who, given current low coffee prices, is ... more This case study focuses on a coffee farmer in Guatemala who, given current low coffee prices, is worried about his ability to maintain the family tradition of coffee production. He wonders whether the current low prices are just another of the periodic downturns in the volatile coffee market or whether the market is experiencing structural changes that will have long-term implications. In this case, the farmer is presented with three alternatives, including continuing to produce and market commodity coffee. The other alternatives involve changes in production and/or marketing practices intended to increase profit margins.

Research paper thumbnail of GPS, Inc.: A Case of Investment under Uncertainty

Review of Agricultural Economics, 2004

Johnny Williams, president of Global Positioning Solutions, Inc., is considering entering the mar... more Johnny Williams, president of Global Positioning Solutions, Inc., is considering entering the market for providing remotely sensed imagery and associated prescriptions to farmers. A large initial investment is required and additional investments will be needed if the business expands. Johnny is faced with trying to predict demand for a product that is not currently available in his market area. The

Research paper thumbnail of Behavioral weather insurance: Applying cumulative prospect theory to agricultural insurance design under narrow framing

PLOS ONE, May 1, 2020

Experience across many countries shows that, without large premium subsidies, crop insurance upta... more Experience across many countries shows that, without large premium subsidies, crop insurance uptake rates are generally low. In this article, we propose to use the cumulative prospect theory to design weather insurance products for situations in which farmers frame insurance narrowly as a stand-alone investment. To this end, we introduce what we call "behavioral weather insurance" whereby insurance contract parameters are adjusted to correspond more closely with farmers' preferences. Depending on farmers' preferences, we find that a stochastic multiyear premium increases the prospect value of weather insurance, while a zero deductible design does not. We suggest that insurance contracts should be tailored precisely to serve farmers' needs. This offers potential benefits for both the insurer and the insured.

Research paper thumbnail of Impacts of the SURE Standing Disaster Assistance Program on Producer Risk Management and Crop Insurance Programs

This research investigates the potential effects of the row crop provisions of the standing disas... more This research investigates the potential effects of the row crop provisions of the standing disaster assistance program (SURE) in the 2008 Farm Bill. Results suggest little impact on producer crop insurance purchase decisions, though the program does seem to provide an incentive for mid-level coverage. Payments under the program should be expected to differ considerably across geographic regions and levels of diversification, with the program providing the greatest benefit to undiversified producers in more risky production regions.

Research paper thumbnail of Impacts of government risk management policies on hedging in futures and options:LPM2 hedge model vs. EU hedge model

The main objective of this study is to compare the impacts of government payments and crop insura... more The main objective of this study is to compare the impacts of government payments and crop insurance policies on the use of futures and options measured from a downside risk hedge model with the impacts analyzed by the expected utility (EU) hedge model. Understanding the effects of government-provided risk management tools on the private market risk management tools, such as futures and options, provides value to both crop farmers and policy makers. Comparison of the impacts from the two hedge models shows that crop farmer will hedge less in futures under the LPM2 model than under the EU hedge model. This finding indicates that model misspecification is another reason for the phenomenon that farmers actually hedge less in futures than predicted by the EU model. From the perspective of exploring new research techniques, this study applied two relatively new simulation concepts, copula simulation and conditional kernel density approach, to make the simulation assumptions less restrict...

Research paper thumbnail of Ascs Program Yields: Policy Implications for Regional Resource Allocation and Crop Insurance

This paper addresses a number of issues with respect to ASCS program yields. In particular, resul... more This paper addresses a number of issues with respect to ASCS program yields. In particular, results from simple regression models suggest that ASCS yields reflect yields per harvested acre rather than yields per planted acre. These results have significant policy implications for both regional resource allocation and crop insurance.

Research paper thumbnail of The SURE Program and Its Interaction with Other Federal Farm Programs

We investigate potential effects of the Supplemental Revenue Assistance Payments (SURE) program i... more We investigate potential effects of the Supplemental Revenue Assistance Payments (SURE) program introduced in the 2008 Farm Bill. Results suggest little impact on optimal crop insurance purchase decisions, though the SURE program does seem to provide an incentive for mid-level insurance coverage. For producers in the price counter-cyclical payment (PCCP) program, SURE payments are actually higher (lower) when commodity prices are high (low). This is not the case for producers in the Average Crop Revenue Election (ACRE) program.

Research paper thumbnail of Yield Aggregation Impacts on a "Deep Loss" Systemic Risk Protection Program

Research paper thumbnail of Proposed Farm Bill Impact On The Optimal Hedge Ratios For Crops

Revenue insurance with shallow loss protection for farmers has been introduced recently. A common... more Revenue insurance with shallow loss protection for farmers has been introduced recently. A common attribute of most shallow loss proposals is that they would be area-revenue triggered. The impact on optimal hedge ratios of combining these shallow loss insurance proposals with deep loss farm-level insurance is examined. Since crop insurance, commodity programs and forward pricing are commonly used concurrently to manage crop revenue risk, the optimal combinations of these tools are explored. Numerical analysis in the presence of yield, basis and futures price variability is used to find the futures hedge ratio which maximizes the certainty equivalent of a risk averse producer. The results generally reveal a lower optimal hedge ratio with area-insurance than with individual insurance and show that STAX and ARC tend to slightly increase optimal hedge ratios.

Research paper thumbnail of Explaining Participation in Federal Crop Insurance

Research paper thumbnail of Developing Area-Triggered Whole Farm Revenue Insurance

Research paper thumbnail of Estimating Site-Specific Crop Yield Response using Varying Coefficient Models

This study estimates the site-specific crop yield response function using varying coefficient mod... more This study estimates the site-specific crop yield response function using varying coefficient models. It is widely recognized that the parameters of yield response function vary dramatically across space and over time. Previous studies usually capture this variability of response by using locational and time dummy variables. While that approach reveals the existence of the response variability, the exact pattern of the variability is unknown, and the capacity of ex ante prediction of such models are limited. This study takes a step forward to explicitly explain how the response varies with the actual site characteristic variables, such as soil, water, topography, weather, and other factors that are commonly available to producers. By using the varying coefficient model, the parameters of the response function are specified to change continuously with those site variables. Based on a simulation data set, the varying coefficient model is demonstrate to outperform the site-dummy model ...

Research paper thumbnail of Challenging Belief in the Law of Small Numbers

Introduction : The context of row crop risk management continues to grow more complex. While the ... more Introduction : The context of row crop risk management continues to grow more complex. While the magnitude of price and yield risk changes over time, the development of sophisticated risk management tools and complex government policies may improve growers’ ability to manage risk -- if these instruments are used correctly. Conversely, these instruments may actually increase risk exposure if used incorrectly. Gone are the days when growers had access only to individual yield insurance and national triggered price programs. In 1996, revenue insurance became available for many crop growers. For most major crops, the acreage covered by revenue insurance now far exceeds that covered by yield insurance. The 2008 farm bill created the complex risk policies of ACRE and SURE (Ubilava et al.). Mitchell et al. argue that ACRE, which subsumed multiple revenue risks and integrated with other risk instruments, was difficult for growers to understand and difficult for county USDA officials to impl...

Research paper thumbnail of Hedging the Price Risk Inherent in Revenue Protection Insurance

Journal of Agricultural and Applied Economics, 2021

Crop revenue insurance is unique, because it involves a guarantee subsuming yield risk and highly... more Crop revenue insurance is unique, because it involves a guarantee subsuming yield risk and highly systematic price risk. This study examines whether crop insurers could use options instead of, or in addition to, assigning policies to the Commercial Funds of the USDA Federal Crop Insurance Corporation (FCIC) as per the Standard Reinsurance Agreement (SRA) to hedge the price risk of revenue insurance policies. The behavioral model examines the optimal hedge ratio for a crop insurer with a book of business consisting of corn Revenue Protection (RP) policies. Results show that a mix of put and call options can hedge the price risk of the RP policies. The higher optimal hedge ratios of call options as compared to put options imply that the risk of increased liability due to upside price risk can be hedged using options better than downside price risk. This study also analyzed the combination of options with the SRA at 35, 50, and 75% retention levels. The zero optimal hedge ratios at eac...

Research paper thumbnail of Analyzing Producer Preferences for Counter-Cyclical Government Payments

Journal of Agricultural and Applied Economics, 2003

A dynamic-stochastic model is developed to evaluate preferences among alternative countercyclical... more A dynamic-stochastic model is developed to evaluate preferences among alternative countercyclical payment programs for representative farms producing corn or soybeans in Iowa and cotton or soybeans in Mississippi. Countercyclical payment programs are found to not necessarily be preferred to fixed payment programs.

Research paper thumbnail of Incentive compatibility in risk management of contagious livestock diseases

The economics of livestock disease insurance: concepts, issues and international case studies, 2006

This chapter emphasizes the importance of incentives when designing animal health policy or risk ... more This chapter emphasizes the importance of incentives when designing animal health policy or risk management instruments. An underlying theme and concern is that improperly designed insurance solutions could increase the disease risk problem for the entire livestock sector. The major challenge in designing disease insurance mechanisms is recognizing the conflict between encouraging producer herd health management and biosecurity measures while maintaining incentives for early disclosure of problems.

Research paper thumbnail of Understanding Regional Differences in Farm Policy Preferences

American Journal of Agricultural Economics, 2011

Research paper thumbnail of Investigating the Implications of Multi-Crop Revenue Insurance for Producer Risk Management

This study investigates the potential for alternative multi-crop revenue insurance designs in com... more This study investigates the potential for alternative multi-crop revenue insurance designs in comparison to single crop yield and revenue insurance designs. A non-parametric multi-crop insurance model is developed which subsumes the single crop designs. The results compare alternative designs in terms of rate levels and risk reduction gains for representative Mississippi producers.

Research paper thumbnail of Implications of Integrated Commodity Programs and Crop Insurance

Journal of Agricultural and Applied Economics

Moving from price-triggered to area revenue–triggered programs was perhaps the most common theme ... more Moving from price-triggered to area revenue–triggered programs was perhaps the most common theme among 2007 farm bill proposals. Area revenue–triggered commodity programs may make farm-level revenue insurance products seem redundant, raising questions about why the federal government should continue both programs. Area revenue–triggered programs would remove much of the systemic risk faced by producers. As a result, private sector insurers may be able to insure the residual risk without federal involvement. This paper examines the effects of moving to area revenue–triggered commodity programs with a focus on public policy issues that would likely arise.

Research paper thumbnail of Evaluating a Proposed Modification to Federal Crop Insurance

A proposed modification to the Federal Crop Insurance Program would allow crop producers to simul... more A proposed modification to the Federal Crop Insurance Program would allow crop producers to simultaneously purchase both a farm-level crop insurance policy and a supplemental county-level crop insurance policy. This study evaluates this proposal for representative cotton farms in Georgia. The goal is to test whether the additional risk protection provided by the supplemental policy is considered to be worth the additional cost.