Spatial Aggregation and Weather Risk Management

¹⁵ The choice of weighting scheme for the districts is not central to the findings. The
analysis was also conducted using a production weighted average which as expected
produced slightly stronger aggregation effects.

¹⁶ Similar to previous research, the results are presented in terms of revenues assuming a
constant price. Thus, we do not address price risk, but rather restrict analysis to quantity
risk only. Evaluation of the price-quantity interaction effect, however, may be an
interesting area of future research.

¹⁷ In-sample estimates of two sub periods, 1971-1986 and 1987-2002, were highly
consistent with the out-of-sample estimates. For example, separate analysis of the in-
sample sub periods (not reported) revealed reductions in RMSL ranging from 3.88%
(26.02%) in the 1^st half of the sample, to 42.59% (4.68%) for the 2^nd half for district D20
(D80), whereas the State portfolio RMSL’s ranged only from 40.24% to 58.66%.

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