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Is there a demand for multi-year crop insurance?

Author

Listed:
  • Maria Osipenko
  • Zhiwei Shen
  • Martin Odening

Abstract

Purpose - – The purpose of this paper is to examine the aggregate demand for single- and multi-year crop insurance contracts and to discuss market potential for multi-year crop insurances. Design/methodology/approach - – In this paper the authors develop a dynamic discrete choice model of insurance alternatives, in which single- and multi-year insurance contracts are offered to heterogeneous risk averse farmers. The farmers determine their insurances choices based on inter-temporal utilities. Findings - – The results show that in a competitive insurance market with heterogeneous risk averse farmers, there is simultaneous demand for both insurance contracts. Moreover, the introduction of multi-year contracts enhances the market penetration of insurance products. Research limitations/implications - – The effect of introducing multi-year crop insurance is moderate when applying the model to US corn production. In practice, however, the increase of insurance demand could be more pronounced because we did not consider marketing and administrative costs and thus ignore this cost reduction potential of multi-year insurance. Originality/value - – This study adds to the literature analyzing the feasibility of multi-year crop insurance and also shows that there is market potential for multi-year crop insurance.

Suggested Citation

  • Maria Osipenko & Zhiwei Shen & Martin Odening, 2015. "Is there a demand for multi-year crop insurance?," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 75(1), pages 92-102, May.
    • Handle: RePEc:eme:afrpps:v:75:y:2015:i:1:p:92-102
    DOI: 10.1108/AFR-12-2014-0043
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    References listed on IDEAS

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    1. Coble, Keith H. & Dismukes, Robert & Thomas, Sarah E., 2007. "Policy Implications of Crop Yield and Revenue Variability at Differing Levels of Disaggregation," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9759, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Barry J. Barnett & Dmitry V. Vedenov, 2007. "Is There a Viable Market for Area-Based Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 508-519.
    3. Chen, Ying-Erh & Goodwin, Barry K., 2010. "The Design of Multiyear Crop Insurance Contracts," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61644, Agricultural and Applied Economics Association.
    4. Barry K. Goodwin & Vincent H. Smith, 2013. "What Harm Is Done By Subsidizing Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 489-497.
    5. Paul Kleindorfer & Howard Kunreuther & Chieh Ou-Yang, 2012. "Single-year and multi-year insurance policies in a competitive market," Journal of Risk and Uncertainty, Springer, vol. 45(1), pages 51-78, August.
    6. Vedenov, Dmitry V. & Barnett, Barry J., 2004. "Efficiency of Weather Derivatives as Primary Crop Insurance Instruments," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(3), pages 1-17, December.
    7. R. Norgaard & T. Killeen, 1980. "Expected Utility and the Truncated Normal Distribution," Management Science, INFORMS, vol. 26(9), pages 901-909, September.
    8. Olivier Mahul, 1999. "Optimum area yield crop insurance," Post-Print hal-01952090, HAL.
    9. Mario J. Miranda, 1991. "Area-Yield Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(2), pages 233-242.
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    Citations

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    Cited by:

    1. Ying-Erh Chen & Barry K Goodwin, 2015. "Policy Design of Multi-Year Crop Insurance Contracts with Partial Payments," PLOS ONE, Public Library of Science, vol. 10(12), pages 1-15, December.

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    More about this item

    Keywords

    Dynamic discrete choice model; Index-based crop insurance; Multi-year insurance;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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