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Revisiting the demand for agricultural insurance: the case of Spain

  • Alberto Garrido
  • David Zilberman

This paper seeks to characterize the factors that explain crop insurance participation. A stylized model of insurance demand, with a simple setup of one crop. CARA preferences, yield insurance, and PDfs for revenue and yeild with moment-generating functions, provides a number of hypotheses about the incentives to contract crop insurance. In the empirical model, we use the actual insurance records of 41,660 Spanish farmers and 12 years of data to estimate six probit models for the insuring versus non-insuring choice, based on individual loss ratios and the dispersion of indemnities, together with idiosyncratic and geographical variables. Results suggest that adverse selection is not a major source of inefficiency in the Spanish insurance system, nor is it the primary motivation to contract crop insurance. Premium subsidies are the leading factor that increases the probability of using insurance. Conclusions are applicable to very diverse farms in Spain.

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Article provided by Emerald Group Publishing in its journal Agricultural Finance Review.

Volume (Year): 68 (2008)
Issue (Month): 1 (September)
Pages: 43-66

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Handle: RePEc:eme:afrpps:v:68:y:2008:i:1:p:43-66
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  1. Vincent H. Smith & Barry K. Goodwin, 1996. "Crop Insurance, Moral Hazard, and Agricultural Chemical Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 428-438.
  2. Babcock, Bruce A. & Hennessy, David A., 1996. "Input Demand Under Yield and Revenue Insurance," Staff General Research Papers 794, Iowa State University, Department of Economics.
  3. Moschini, GianCarlo & Hennessy, David A., 2001. "Uncertainty, Risk Aversion, and Risk Management for Agricultural Producers," Staff General Research Papers 5323, Iowa State University, Department of Economics.
  4. Nimon, R. Wesley & Mishra, Ashok K., 2001. "Revenue Insurance and Chemical Input Use Rates," 2001 Annual meeting, August 5-8, Chicago, IL 20669, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. 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.
  6. Quiggin, John C. & Karagiannis, Giannis & Stanton, J., 1993. "Crop Insurance And Crop Production: An Empirical Study Of Moral Hazard And Adverse Selection," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 37(02), August.
  7. Goodwin, Barry K., 1994. "Premium Rate Determination In The Federal Crop Insurance Program: What Do Averages Have To Say About Risk?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(02), December.
  8. Barnett, Barry J., 2004. "Agricultural Index Insurance Products: Strengths And Limitations," Agricultural Outlook Forum 2004 32971, United States Department of Agriculture, Agricultural Outlook Forum.
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