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Hail Insurance and Pesticide use in French agriculture: an empirical analysis of multiple risks management

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  • Chakir, Raja
  • Hardelin, Julien

Abstract

This paper investigates the determinants of rapeseed hail insurance and pesticide use decisions using individual panel data set of French farms covering the period from 1993 to 2004. Economic theory suggests that insurance and prevention decisions are not independent due to risk reduction and/or moral hazard effects. Statistical tests show that the pesticide use and hail insurance demand are endogenous to each other. An econometric model involving two simultaneous equations with a mixed censored/continuous dependent variables is then estimated. Estimation results show that rapeseed insurance demand has a positive and significant effect on pesticide use and vice versa. Insurance demand is also positively influenced by the yield’s coefficient of variation and the loss ratio, and negatively influenced by proxies for wealth (including CAP subsidies) and activity diversification.

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File URL: http://purl.umn.edu/114312
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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 114312.

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Date of creation: 2011
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Handle: RePEc:ags:eaae11:114312

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Keywords: Risk and Uncertainty;

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  1. Vincent H. Smith & Alan E. Baquet, 1996. "The Demand for Multiple Peril Crop Insurance: Evidence from Montana Wheat Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 189-201.
  2. Amemiya, Takeshi, 1974. "Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal," Econometrica, Econometric Society, vol. 42(6), pages 999-1012, November.
  3. Phoebe Koundouri & Marita Laukkanen & Sami Myyrä & Celine Nauges, 2009. "The effects of EU agricultural policy changes on farmers' risk attitudes," Working Papers 30225, Institut National de la Recherche Agronomique, France.
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  6. Rulon D. Pope, 2003. "Agricultural Risk Analysis: Adequacy of Models, Data, and Issues," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(5), pages 1249-1256.
  7. Kirwan, Barrett E., 2009. "Adversity and the Propensity to Fail: The Impact of Disaster Payments and Multiple Peril Crop Insurance on U.S. Farm Exit Rates," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49569, Agricultural and Applied Economics Association.
  8. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-35, May.
  9. JunJie Wu, 1999. "Crop Insurance, Acreage Decisions, and Nonpoint-Source Pollution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 305-320.
  10. 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.
  11. Erik J. O'Donoghue & Michael J. Roberts & Nigel Key, 2009. "Did the Federal Crop Insurance Reform Act Alter Farm Enterprise Diversification?," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(1), pages 80-104.
  12. Innes, Robert, 1990. "Government Target Price Intervention in Economies with Incomplete Markets," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 1035-52, November.
  13. William Greene, 2004. "Fixed Effects and Bias Due to the Incidental Parameters Problem in the Tobit Model," Econometric Reviews, Taylor & Francis Journals, vol. 23(2), pages 125-147.
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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.

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