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Crop Insurance and Pesticides in French agriculture: an empirical analysis of multiple risks management

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  • Raja Chakir
  • Julien Hardelin

Abstract

This paper investigates the determinants of rapeseed hail insurance and chemical input 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. We propose a theoretical framework that integrates two statistically independent sources of risk faced by farmers of our sample -hail risk and pest risk. Statistical tests confirm that chemical and insurance demands are endogenous to each other and simultaneously determined. An econometric model involving two simultaneous equations with mixed censored/continuous dependent variables is thus estimated for rapeseed. 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 coeficient of variation and the loss ratio, and negatively influenced by proxies for wealth (including CAP subsidies) and activity diversification.

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Bibliographic Info

Paper provided by INRA, Economie Publique in its series Working Papers with number 2010/04.

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Date of creation: 01 May 2010
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Handle: RePEc:apu:wpaper:2010/04

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Related research

Keywords: Crop insurance; Pesticide use; Simultaneous equations;

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References

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  1. Hau, Arthur, 2006. "Production under uncertainty with insurance or hedging," Insurance: Mathematics and Economics, Elsevier, vol. 38(2), pages 347-359, April.
  2. 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.
  3. 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.
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  7. David A. Hennessy, 2004. "On Monoculture and the Structure of Crop Rotations," Center for Agricultural and Rural Development (CARD) Publications 04-wp369, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  8. 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.
  9. 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.
  10. 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.
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  15. Machnes, Yaffa, 1995. "Deductible insurance and production," Insurance: Mathematics and Economics, Elsevier, vol. 17(2), pages 119-123, October.
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  17. Velandia, Margarita M. & Rejesus, Roderick M. & Knight, Thomas O. & Sherrick, Bruce J., 2009. "Factors Affecting Farmers’ Utilization of Agricultural Risk Management Tools: The Case of Crop Insurance, Forward Contracting, and Spreading Sales," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(01), April.
  18. 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.
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  21. Barry K. Goodwin & Monte L. Vandeveer & John L. Deal, 2004. "An Empirical Analysis of Acreage Effects of Participation in the Federal Crop Insurance Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1058-1077.
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Cited by:
  1. Magali Aubert & Geoffroy Enjolras, 2012. "Quand le surdosage devient la norme : un diagnostic des exploitations viticoles françaises," Working Papers 175554, Institut National de la Recherche Agronomique, France.

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