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Testing for adverse selection of crop insurance in northern China

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Author Info

  • Linging Hou
  • Dana L.K. Hoag
  • Yueying Mu

Abstract

Purpose – The purpose of this paper is to examine the efficiency of current subsidized crop insurance products (SCIPs) in Miyun county, in northern China, by testing the existence of adverse selection. Design/methodology/approach – The authors examine the efficiency of SCIPs from a farmers' point of view by testing the existence of adverse selection using nonparametric tests and logit regression on data from individual interviews in Miyun County. Due to adverse selection, producers with more risk should be more likely to buy crop insurance in pursuit of the benefits from SCIPs. Findings – However, both methods conclude no existence of adverse selection, which indicates that the programs are inefficient. This may not be surprising based on the issues of concern cited above. The opportunities and challenges of a growing interest in weather index insurance are discussed toward the end of the paper. Originality/value – This paper weaves together literature on traditional and weather index insurance, along with primary data from a survey, to examine the pros and cons of each type of insurance. Implications for policy makers are to compare the tradeoffs between concerns of the two types of insurance examined here, traditional and weather index insurance. Ultimately, the political goals might best determine which option is most desirable.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal China Agricultural Economic Review.

Volume (Year): 3 (2011)
Issue (Month): 4 (November)
Pages: 462-475

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Handle: RePEc:eme:caerpp:v:3:y:2011:i:4:p:462-475

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Related research

Keywords: Adverse selection; China; Crop insurance; Crops; Insurance; Weather index insurance;

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References

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  1. Richard E. Just & Linda Calvin & John Quiggin, 1999. "Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 834-849.
  2. Barry J. Barnett & Olivier Mahul, 2007. "Weather Index Insurance for Agriculture and Rural Areas in Lower-Income Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1241-1247.
  3. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  4. Benjamin Collier & Jerry Skees & Barry Barnett, 2009. "Weather Index Insurance and Climate Change: Opportunities and Challenges in Lower Income Countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 34(3), pages 401-424, July.
  5. Turvey, Calum G. & Kong, Rong & Belltawn, Burgen, 2009. "Weather Risk and the Viability of Weather Insurance In Western China," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49362, Agricultural and Applied Economics Association.
  6. Alan P. Ker, 2001. "Private Insurance Company Involvement in the U.S. Crop Insurance Program," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 49(4), pages 557-566, December.
  7. Sommarat Chantarat & Christopher B. Barrett & Andrew G. Mude & Calum G. Turvey, 2007. "Using Weather Index Insurance to Improve Drought Response for Famine Prevention," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1262-1268.
  8. Wang, Hong & Zhang, Licheng & Yip, Winnie & Hsiao, William, 2006. "Adverse selection in a voluntary Rural Mutual Health Care health insurance scheme in China," Social Science & Medicine, Elsevier, vol. 63(5), pages 1236-1245, September.
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