The indemnified production is calculated by the difference between the critical
production and the production of the nature states corresponding to the bad years (states
of nature 1 and 2). The premium rate is calculated by the loss probability (production less
than average production) multiplied by the critical production and the intervention price.
This research work uses the values of loss probability calculated by Ventura-Lucas
(1995) and Carvalho (1999). The value of the indemnities received by each farm will be
calculated multiplying the indemnified production by the production area in hectares and
the intervention price.
17
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