Input use under cost-of-production crop insurance: Theory and evidence

There have been a number of previous studies that examined the effects of yield- or revenue-based crop insurance products on input use of farmers. However, no study has specifically investigated the input use impacts of a cost-of-production (COP) crop insurance policy, even though this type of crop insurance is the predominant one used in several other countries outside of the United States (such as the Philippines and China). This article aims to theoretically and empirically examine the effect of a COP crop insurance product on farmers’ chemical input use. Our theoretical model suggests that the effect of COP insurance on input use can either be positive or negative, with the resulting impact depending on the strengths of (a) the traditional moral hazard effect of insurance (i.e., an input use decreasing effect); versus (b) the marginal incentives to apply more inputs due to input levels being the main determinant for expected indemnity amounts in this type of insurance (i.e., an input use increasing effect). A survey data set from corn farmers in the Philippines is then used to empirically illustrate how a particular COP insurance product influences input use in a real-life context. In this case, we find that COP insurance increases the use of chemical inputs (e.g., fertilizers and total chemical expenditure), implying that the positive marginal incentive to apply more inputs dominates the negative moral hazard effect.     

The influence of crop insurance agents on coverage choices: The role of agent competition

We examine how competition among crop insurance agents affects coverage choice in the federal crop insurance program. Agents may influence producers’ insurance decisions to maximize their total compensation. We develop a theoretical model of producer–agent interaction to examine how loss potential, agent compensation mechanisms, and market competition affect the coverage level selected. Using crop insurance unit-level datasets from five states, we find evidence that agent market concentration and agents’ market share matter in the insurance coverage decisions of producers but that the economic significance of the influence is relatively small. Agent influence over coverage level, premium, and liability choice is generally positive but inconsistent across states, which may be attributable to differences in loss risk and agent compensation mechanisms.     

Moral hazard and subsidized crop insurance

Along with adverse selection, moral hazard is one of the major hurdles that private and public insurance plans must contend with. Moral hazard occurs if risks are endogenous to a producer's behavior and if the insurer is unable to properly monitor the insured. We review the role of moral hazard in the US crop insurance program. We conduct an empirical analysis of one important aspect of the US crop insurance program—prevented planting. This provision provides indemnity payments if conditions are not suitable for planting. The program has been the subject of considerable controversy, especially during 2019, when the rate of claims is expected to be especially high. Because loss adjustors may encounter difficulties in assessing the weather conditions associated with prevented planting claims, the program is susceptible to moral hazard. We consider the extent to which prevented planting claims may be endogenous to prices. We find significant evidence of moral hazard. The likelihood of prevented planting claims increases as the expected market price decreases or as fertilizer costs increase for corn and soybeans in the Prairie Pothole Region and for grain sorghum and cotton in all states.     

How crop insurance influences agrochemical input use: Evidence from cotton farmers in China

Crop insurance is critical in risk management in global agricultural production (e.g. by helping stabilise farmers' incomes in the long term and reducing risk-bearing costs). In this paper, using field survey data on cotton farmers in Xinjiang, China, we examine the influence of crop insurance on farmers' behaviours regarding agrochemical inputs and aim to investigate the synergy between crop insurance and reductions in fertiliser and pesticide usage. We find evidence that crop insurance significantly negatively affects farmers' use of fertilisers and pesticides, as well as significantly positively affects their adoption of green agricultural technologies (GAT) that can replace or complement traditional fertilisers and pesticides. Moreover, our results reveal that compared with small-scale farmers, crop insurance has a stronger effect on large-scale farmers' use of agrochemicals. Finally, when the insured amount is higher or the relative deductible is lower, farmers are more likely to reduce fertiliser and pesticide usage and adopt GAT. Overall, this paper scientifically identifies crop insurance can improve farmers' agrochemical input behaviour, by reducing farmers' use of traditional agrochemical inputs and increasing their adoption of GAT, which is of great significance for ensuring the safety of the agricultural ecological environment.     

The influence of direct payments on farmers’ hail insurance decisions

We analyze determinants of hail insurance use of Swiss farmers, using FADN panel data covering the period 1990–2009. Mixed effect logistic regression models are estimated to identify the most important farm and farmer characteristics that trigger insurance use. In addition, information on local hail risk is taken into account in these models. It shows that larger farms, with specialization in crop production, and with larger local hail risks are more likely to adopt the hail insurance. Moreover, insurance users are usually older and better educated. Since the early 1990s, Swiss agricultural policy has reduced price support and introduced general and ecological direct payments. This has led to a much higher importance of direct payments for farmers’ incomes. Our analysis shows that this development has contributed to decreasing hail insurance adoption rates in Switzerland over the period considered. Our results indicate that the larger the share of direct payments for total farm revenue, the less attractive is insurance as a risk management strategy for farmers. This interdependency should be explicitly considered by agricultural policy in the design of support mechanisms.     

Risk preferences of commodity crop producers and specialty crop producers: An application of prospect theory

Producers’ decisions, such as crop insurance, contract agreement, and technology adoption, involve considerable risk and uncertainty. Particularly, specialty crop production is more vulnerable to risk and requires more intensive management than commodity crop production, while risk mitigation tools for specialty crop production are comparatively limited. We apply Prospect Theory (PT) to analyze risk preferences of U.S. producers, and further compare the preference differences between commodity crop and specialty crop producers. Reference dependent, diminishing sensitivity, loss aversion, and probability weighting, as well as certain farm characteristics and producer demographics, are found to have a significant impact on grower risk attitudes. In addition, we do not observe significant differences in the base PT estimates between commodity crop and specialty crop producers. However, the relationships between risk behavior and individual characteristics vary between the two types of producers, which shed lights on the development of agricultural policies and provide implications for the design of contract and insurance.     

Demand for area crop insurance among litchi producers in northern Vietnam

This study examines the need for crop insurance for litchi production in northern Vietnam and how farmers might participate in such a program. Hypothetical insurance programs were developed which proposed all‐risk coverage based on area yields. This coverage was offered to farmers to determine both their interest in the program and how insurance features and farmer characteristics affected their decision to buy insurance. Farmers were also surveyed regarding their production practices, price and yield expectations, and financial and personal characteristics. Even before considering other program costs and government budget constraints, there is not a strong case for establishing a crop insurance program here. Results indicate that while farmer participation would be significant, crop insurance is not needed to achieve policy goals like raising farmer income or guaranteeing subsistence levels of income. Crop insurance is not needed to promote litchi production, which is already expanding rapidly due to its high profitability relative to other farm enterprises. In their choice of coverages, farmers preferred higher yield guarantee levels and lower indemnity prices. Estimated premiums were quite low when expressed as a percent of expected revenue, and farmers were not responsive to changes in premiums. Econometric analysis indicated that high income farmers were more likely to participate, but other farmer characteristics seemed to matter little. Anecdotal evidence suggested that farmers believed the expected area yields used to set insurance coverage levels were too low. Because litchi productivity varies significantly by tree age and the litchi planted area is expanding rapidly, determining appropriate values for expected area yields and insurance coverage levels appeared to be the biggest challenge in program design. It is hypothesized that additional farmer education about the relationship between area and farm yields and other aspects of area insurance could improve such a program's operation. Published by Elsevier Science B.V.     

Moral hazard and adverse selection effects of cost‐of‐production crop insurance: evidence from the Philippines

This article examines the moral hazard and adverse selection effects of cost‐of‐production (COP) crop insurance products. Building on existing crop insurance models of moral hazard, as well as a survey‐based data set that allows us to separately identify moral hazard from adverse selection, we find evidence that farmers insured under COP contracts spend more on chemical fertilizers and pesticides (i.e. those inputs whose costs determine the indemnity payments). However, since these same COP insured farmers are still likely to use less inputs (like effort) whose costs do not enter the indemnity payment formula, and yield depends on both types of inputs (i.e. the determinants and non‐determinants of the indemnity payments), the final moral hazard effect of COP insurance on yields is ambiguous. Our analysis also suggests that farmers who tend to spend less on chemical fertilizers and pesticides are the ones with private information on soil conditions and pest incidence. These are the types of farmers who adversely select into COP contracts that only cover weather related losses.     

The impacts of multiperil crop insurance on Indonesian rice farmers and production

This article analyzes the effect of multiperil crop insurance policy for risk‐averse Indonesian rice farmers located in Tuban and Gresik Regencies of the East Java Province. Based on the model, comparative static analysis of a change in policy variables (coverage levels and premium subsidies) on input use through the coupling, wealth, and insurance effects are presented. The comparative static results are largely ambiguous and left as empirical questions. Consequently, the model is numerically simulated to quantify the effects of different coverage levels and subsidy rates on input use, expected net insurance payments, and certainty equivalents. The empirical analysis shows that MPCI crop insurance results in a decline in expected yield for coverage levels above about 82.5% for both regencies. Furthermore, higher subsidy rates amplify the reduction in input use and yield. Therefore, incomplete coverage with relatively low premium subsidies is the best policy to minimize the impact on input use and yield. However, from the farmers’ perspective, the optimal policy combination results from the highest coverage level and subsidy, which offer the largest expected net insurance payments and certainty equivalent.     

论渔船船员风险和渔业保险

本文作者认为,渔业生产、特别是捕捞生产是一个高危产业,在中央高度重视生产安全工作的重要时期,准确把握生产中船员生命与财产损失,为国家制定相应政策提供参考是十分重要的。为此,作者基于长期渔业船保的实践和经验,对我国渔业船员的死亡数作了较为准确的评估,与国内重点高危行业死亡率进行了分析与比较,提出了要尽快研究制定渔业船员死亡控制标准,并较为全面地阐述了中国政策性渔业保险制度的模式选择。     

Coping with systemic risk in index‐based crop insurance

The implementation of index‐based crop insurance is often impeded by the existence of systemic risk of insured losses. We assess the effectiveness of two strategies for coping with systemic risk: regional diversification and securitization with catastrophe (CAT) bonds. The analysis is conducted in an equilibrium pricing framework which allows the optimal price of the insurance and the number of traded contracts to be determined. We also explore the role of basis risk and risk aversion of market agents. The model is applied to a hypothetical area yield insurance for rice producers in northeast China. If yields in two regions are positively correlated, we find that enlarging the insured area leads to higher insurance premiums. Unless capital market investors are very risk averse, a CAT bond written on an area yield index outperforms regional diversification in terms of certainty equivalents of both farmers and insurers.     

水产养殖保险应用类型的比较研究

我国现阶段所开展的水产养殖保险主要有两种类型,一种是传统型,即以实际损失程度为理赔依据的水产养殖保险;另一种是创新型,目前主要以气象指标发生程度为理赔依据的水产养殖保险。两种类型的水产养殖保险在险种设计、运营管理和承保理赔方式等方面存在着显著的差异,应用条件及适用范围也存在较大不同。论文通过比对两种类型的水产养殖保险的特征与利弊,结合我国现有的水产养殖品种和养殖模式,重点对其应用范围进行了分析,并提出了有关建议,以期能对相关机构推进水产养殖保险工作提供参考。     

Is There a Viable Market for Area-Based Crop Insurance?

The performance of area yield insurance and farm-level multiple peril crop insurance is analyzed for cotton and soybean production in Georgia and South Carolina. The analysis improves on many previous studies by utilizing actual farm-level yield data and by comparing the two types of insurance products not only for actuarially fair premium rates but also for actual unsubsidized and subsidized premium rates. Results suggest that, even in heterogeneous production regions, area yield insurance may be a viable alternative to farm-level insurance when premium rates for farm-level insurance contain large positive wedges.     

Warming temperatures will likely induce higher premium rates and government outlays for the U.S. crop insurance program

Likely climate change impacts include damages to agricultural production resulting from increased exposure to extreme heat. Considerable uncertainty remains regarding impacts on crop insurance programs. We utilize a panel of U.S. corn yield data to predict the effect of warming temperatures on the mean and variance of yields, as well as crop insurance premium rates and producer subsidies. While we focus on corn, we demonstrate that the subsidy impacts are likely to carry over to other major program crops. We find that warming decreases mean yields and increases yield risk on average, which results in higher premium rates. Under a 1°C warming scenario, we find that premium rates at the 90% coverage level will increase by 39% on average; however, there is considerable statistical uncertainty around this average as the 95% confidence interval spans from 22% to 61%. We also find evidence of extensive cross‐sectional differences as the county‐level rate impacts range from a 10% reduction to a 63% increase. Results indicate that exposure to extreme heat and changes in the coefficient of variation are large drivers of the impacts. Under the 1°C warming scenario, we find that annual subsidy payments for the crop insurance program could increase by as much as $1.5 billion, representing a 22% increase relative to current levels. This estimate increases to 3.7 billion (57%) under a 2°C warming scenario. Our results correspond to a very specific counterfactual: the marginal effect of warming temperatures under current technology, production, and crop insurance enrollments. These impacts are shown to be smaller than the forecasted impacts under a commonly used end‐of‐century general circulation model for even the most optimistic CO₂ emissions projection.     

国内外水产养殖保险市场的比较研究

长期以来我国水产养殖保险市场跟现实需求并不相称,一方面养殖者对保险有迫切需要,另一方面保险公司因为赔付率过高而不敢承保。论文通过与该市场开展较好的地区（或国家）比较,分析了造成我国市场失灵既有市场原因、行业自身原因,也有政府原因,认为在当前情况下政府提供有效支持是助其摆脱困境的可行之策,并就经济学依据、有效途径、注意问题做相关论述。