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Modeling Exit and Entry of Farmers in a Crop Insurance Program

  • Cabas, Juan H.
  • Leiva, Akssell J.
  • Weersink, Alfons

This paper examines the factors influencing farmer participation in crop insurance schemes, but unlike previous studies that focus on total demand, participation is disaggregated into entrants and those exiting. Modeling entry and exit decisions separately illustrates that the effect of a given variable is often muted by aggregation. In addition, the approach in this paper distinguishes between price and yield variables rather than total returns and is consequently able to demonstrate that price variables are particularly important for farmers considering enrolling in crop insurance, while yield variables and other risk management opportunities are more important for farmers who have been in the program but are deciding to exit. The result suggests that moral hazard is reduced significantly by calculating the coverage yield level for an individual producer on the basis of a moving average of past yields for that farmer. While yield and its variance are particularly influential in the participation decision for farmers currently enrolled, its significant impact on the insurance decision for all farmers highlights the importance of crop insurance as a potential adaptation strategy to weather events.

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File URL: http://purl.umn.edu/44741
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Article provided by Northeastern Agricultural and Resource Economics Association in its journal Agricultural and Resource Economics Review.

Volume (Year): 37 (2008)
Issue (Month): 1 (April)
Pages:

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Handle: RePEc:ags:arerjl:44741
Contact details of provider: Web page: http://www.narea.org/

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  1. Adesina, A. A. & Brorsen, B. W., 1987. "A Risk Responsive Acreage Response Function for Millet in Niger," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 1(3), October.
  2. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1996. "Modeling Farm-Level Crop Insurance Demand with Panel Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 439-447.
  3. Niewuwoudt, W.L. & Bullock, J.B., 1985. "The Demand for Crop Insurance," 1985 Conference, August 26-September 4, 1985, Málaga, Spain 183028, International Association of Agricultural Economists.
  4. H. Douglas Jose & Ram S. K. Valluru, 1997. "Insights from the Crop Insurance Reform Act of 1994," Agribusiness, John Wiley & Sons, Ltd., vol. 13(6), pages 587-598.
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