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Risk management activities of a non-industrial privateforest owner with a bivariate utility function

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  • Brunette, Marielle
  • Couture, Stéphane
Abstract
We analyze the insurance and self-insurance choices of a private forest owner whoseutility is bivariate (consumption and forest amenity value). We show that under fairpremium, full insurance is optimal only if the cross derivative of the utility func-tion is equal to zero, whereas under unfair premium, optimal partial insurance isvalidated only if the cross derivative is positive. We also show that insurance andself-insurance may be substitutes, and if preferences are separable and the cost ofinsurance is not so high, then insurance and self-insurance are always considered assubstitutes. However, we find in an illustration with a non-separable bivariate utilityfunction, characterized by weights given to consumption and amenities, that insur-ance and self-insurance are complement. We obtain that the weight given to amenitiessubstantially affects optimal risk management activities for unfair insurance. Theseresults highlight the importance to represent the forest owner’s behavior through abivariate utility function.

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  • Brunette, Marielle & Couture, Stéphane, 2018. "Risk management activities of a non-industrial privateforest owner with a bivariate utility function," Review of Agricultural, Food and Environmental Studies, Institut National de la Recherche Agronomique (INRA), vol. 99(3-4), November.
    • Handle: RePEc:ags:frrfes:300923
    DOI: 10.22004/ag.econ.300923
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    Cited by:

    1. Sandrine Brèteau-Amores & Marielle Brunette & Christophe François & Antoine Leblois & Nicolas Martin-StPaul, 2021. "Index insurance for coping with drought-induced risk of production losses in French forests," Working Papers of BETA 2021-44, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    2. Patrice Loisel & Marielle Brunette & Stéphane Couture, 2020. "Insurance and Forest Rotation Decisions Under Storm Risk," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 76(2), pages 347-367, July.

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    More about this item

    Keywords

    Community/Rural/Urban Development; Farm Management; Financial Economics;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry

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