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Hog Insurance Adoption and Suppliers' Discrimination: A Bivariate Probit Model with Partial Observability

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  • Cao, Ying
  • Zhang, Yuehua
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    Abstract

    This paper explores the factors that impact insurance choices. Specially designed survey questions allow one to fully observe the demand tendency by the farmers and partially observe the supply tendency by the insurance company. A joint estimation of insurance decision by both supply and demand sides suggested that factors performing different roles in affecting insurance participation game. Farmer’s age and education have positive impact on insurance demand, but are indifference to the insurance providers. Insurance suppliers care more about farmers’ experience in the field, but this experience occasionally results in overconfidence for the farmers and hence, impedes insurance purchasing. Production scales, proxy by sow inventory, is put more weight by the farmers than the suppliers when making decisions. Production efficiency measures, which performs as incentives for farmers to purchase insurance, acts as some disadvantages in the suppliers’ point of view. While the suppliers prefer customers who use vaccine, the hog producers tend to treat vaccine as a substitute for insurance so as to prevent disease risk. The study also generates discussion on the topics such as short-run vs. long-run factor impact by comparing past insurance choices and current choices. Information on choices regarding different types of insurance (hog and breeding sow) is also discussed. Results from bivairate probit model offers deeper understanding about livestock insurance choices and further insights to improve policy design and promote participation.

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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 103158.

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    Date of creation: Mar 2011
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    Handle: RePEc:ags:aaea11:103158

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    Keywords: Livestock Insurance Choices; Bivariate Probit; Partial Observability; Agribusiness; International Development; Livestock Production/Industries; Risk and Uncertainty; C35; D13; Q12;

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    1. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
    2. Gine, Xavier & Yang, Dean, 2007. "Insurance, credit, and technology adoption : field experimental evidence from Malawi," Policy Research Working Paper Series 4425, The World Bank.
    3. O'Donoghue, Erik J. & Key, Nigel D. & Roberts, Michael J., 2005. "Does risk matter for farm businesses? The effect of crop insurance on production and diversification," 2005 Annual meeting, July 24-27, Providence, RI 19397, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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