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Modeling Exit and Entry of Farmers in a Crop Insurance Program

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Author Info

  • Cabas, Juan H.
  • Leiva, Akssell J.
  • Weersink, Alfons

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.

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Bibliographic Info

Article provided by Northeastern Agricultural and Resource Economics Association in its journal Agricultural and Resource Economics Review.

Volume (Year): 37 (2008)
Issue (Month): 1 (April)
Pages:

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Handle: RePEc:ags:arerjl:44741

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Web page: http://www.narea.org/
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Related research

Keywords: crop insurance; entry and exit; panel data; Risk and Uncertainty;

References

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  1. Adesina, Akinwumi A. & Brorsen, B. Wade, 1987. "A risk responsive acreage response function for millet in Niger," Agricultural Economics, Blackwell, vol. 1(3), pages 229-239, October.
  2. H. Douglas Jose & Ram S. K. Valluru, 1997. "Insights from the Crop Insurance Reform Act of 1994," Agribusiness, John Wiley & Sons, Ltd., vol. 13(6), pages 587-598.
  3. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1996. "Modeling Farm-Level Crop Insurance Demand with Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 439-447.
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Citations

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Cited by:
  1. Robert Finger & Niklaus Lehmann, 2012. "The influence of direct payments on farmers’ hail insurance decisions," Agricultural Economics, International Association of Agricultural Economists, vol. 43(3), pages 343-354, 05.
  2. Finger, Robert & Lehmann, Niklaus, 2011. "Do Direct Payments Influence Farmers' Hail Insurance Decisions?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114355, European Association of Agricultural Economists.
  3. Poon, Kenneth, 2013. "Risky Business: Factors Affecting Participation Rate of AgriStability," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150978, Agricultural and Applied Economics Association.

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