Agricultural production is highly vulnerable to weather variability, necessitating robust risk management strategies such as weather index insurance (WII). While WII has shown potential to mitigate weather-related risks, its adoption faces significant challenges due to basis risk and the complexity of index-based payout structures. This article proposes an integrated design framework for WII, grounded in expected utility maximization, to address these issues. The framework leverages a tree-based sequential quadratic programming algorithm to simultaneously select relevant weather variables and payout structures. By optimizing model performance under a controlled level of model complexity, our approach enhances the interpretability and effectiveness of WII contracts. The empirical study, applied to soybean production in Iowa, demonstrates that the proposed design significantly improves policyholder utility, even without government subsidies, and outperforms traditional methods including least absolute shrinkage and selection operator (LASSO), principal component analysis (PCA), and stepwise regression. These findings offer valuable insights for improving the agricultural insurance market and fostering wider adoption of WII.
The health insurance industry experienced substantial consolidation following the passage of the Affordable Care Act (ACA). We use event studies and cross-sectional regression models to measure the effects the ACA had on health insurer mergers and acquisitions. Generally, our analyses document positive target returns and nonnegative bidder and combined returns, which provide support for the value maximization hypothesis. We also find that medical loss ratio (MLR) rebates and Medicaid expansion both influence merger activity in the industry, while exchange participation has no significant effect. Additionally, our results indicate mergers occur for synergistic reasons in the pre-ACA period, while post-ACA mergers have broadly collusive and noncompetitive effects. However, we find that rival firms participating in the exchanges experience negative returns surrounding merger announcements, suggesting a more competitive market in the exchanges.
