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Modeling Exit and Entry of Farmers in a Crop Insurance Program

Published online by Cambridge University Press:  15 September 2016

Juan H. Cabas ,
Akssell J. Leiva  and
Alfons Weersink
Juan H. Cabas
Affiliation:
Facultad de Estudios Empresariales at the Universidad del Βío Βío in Chile
Akssell J. Leiva
Affiliation:
Program Development Division at Agricorp
Alfons Weersink
Affiliation:
Agricultural and Resource Economics (FARE) Department at the University of Guelph
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Abstract

This paper examines the factors influencing farmer participation in crop insurance schemes, but unlike previous studies that focus on total demand, participation is disaggregated into entrants and those exiting. Modeling entry and exit decisions separately illustrates that the effect of a given variable is often muted by aggregation. In addition, the approach in this paper distinguishes between price and yield variables rather than total returns and is consequently able to demonstrate that price variables are particularly important for farmers considering enrolling in crop insurance, while yield variables and other risk management opportunities are more important for farmers who have been in the program but are deciding to exit. The result suggests that moral hazard is reduced significantly by calculating the coverage yield level for an individual producer on the basis of a moving average of past yields for that farmer. While yield and its variance are particularly influential in the participation decision for farmers currently enrolled, its significant impact on the insurance decision for all farmers highlights the importance of crop insurance as a potential adaptation strategy to weather events.

Keywords

crop insuranceentryexitpanel data
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 37 , Issue 1 , April 2008 , pp. 92 - 105
Copyright
Copyright © 2008 Northeastern Agricultural and Resource Economics Association 

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