AN ANALYSIS OF WILLINGNESS-TO-PAY FOR CROP INSURANCE*

In this paper a method for estimating a producer's willingness-to-pay for crop insurance is presented. The method includes formulae to capture the impact of crop insurance on the producer's expected income and variance of income. These impacts are evaluated in the context of a model of producer welfare which features both price and yield uncertainty, as well as risk aversion on the part of the producer. The method is applied to the Australian wheat industry and estimates of willingness-to-pay are shown to be relatively sensitive to the levels of coverage and yield variability.