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Understanding farmers’ valuation of agricultural insurance: Evidence from Vietnam

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  • King, Michael
  • Singh, Anuj Pratap

Abstract

Agricultural index insurance offers smallholder farmers the potential to manage pervasive weather and environmental risks, and smooth income over time. Yet despite the potential benefits, take-up of index insurance has been largely disappointing. We employ a novel approach to investigate the reasons for low demand and we confirm that farmers systematically undervalue agricultural index insurance. We find that access to private transfers acts as a substitute for insurance demand, while membership of a farmer’s union helps explain why farmers value index insurance. Finally, we find that individual riskiness is positively related to willingness to pay for agricultural index insurance and interpret this as further evidence that, within the context of basis risk and lack of trust in insurers, farmers valuation of agricultural index insurance can be better understood through behavioural theories such as ambiguity aversion or prospect theory.

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  • King, Michael & Singh, Anuj Pratap, 2020. "Understanding farmers’ valuation of agricultural insurance: Evidence from Vietnam," Food Policy, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:jfpoli:v:94:y:2020:i:c:s0306919220300452
    DOI: 10.1016/j.foodpol.2020.101861
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    More about this item

    Keywords

    Agricultural insurance; Willingness to pay; Expected utility theory; Risk aversion; Social capital; Remittances;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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