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Abstract
Government farm support programs such as Loan Deficiency Payments (LDP) and
Counter-Cyclical Payments (CCP) have payoff structures that effectively make them
costless price insurance instruments. A combination of these payments with yield insurance
may provide a viable alternative to revenue insurance. This paper finds that, contrary to
expectations, the revenue product analyzed is uniformly superior to yield insurance under
both current (2002) and proposed (2008) Farm Bill structures of government payments.
Given minor adjustments, however, yield insurance combined with government payments
can provide more effective risk management than revenue insurance in production areas
with low yield–price correlation.