Enhancing Decision Making in Livestock Risk Protection Insurance: Insights into Optimal LRP Contract Selection

We identify optimal producer-selected coverage options across all marketing months and insurable commodities within Livestock Risk Protection Insurance. Optimal contracts are defined as those having combinations of coverage length and level that have historically provided the highest probability of a positive net return and the highest average net return. Using probabilistic modeling, we evaluate the effect of producer size on the likelihood of purchasing optimal contracts. Results indicate that (i) optimal contracts generally have relatively higher coverage levels, (ii) producers often purchase contracts not identified as optimal, and (iii) producers are categorized within two distinct groups when considering optimal contract selection.