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The Demand for Multiple Peril Crop Insurance: Evidence from Montana Wheat Farms

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  • Vincent H. Smith
  • Alan E. Baquet

Abstract

An econometric analysis of the demand for multiple peril crop insurance is carried out for a sample of 370 Montana wheat farms. The study is the first to model the farm's participation and coverage-level decisions separately through Heckman two-stage estimation procedures. These decisions are shown to be determined in different ways. In addition, farms with positive expected returns from insurance make coverage-level decisions in different ways from farms with negative expected returns. These differences indicate that adverse selection effects limit the efficacy of across-the-board premium rate increases as mechanisms for reducing loss ratios. Copyright 1996, Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:ajagec:v:78:y:1996:i:1:p:189-201
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    File URL: http://hdl.handle.net/10.2307/1243790
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    References listed on IDEAS

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    1. Jerry R. Skees & J. Roy Black & Barry J. Barnett, 1997. "Designing and Rating an Area Yield Crop Insurance Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 430-438.
    2. Joseph W. Glauber, 2004. "Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1179-1195.
    3. Haiping Luo & Jerry R. Skees & Mary A. Marchant, 1994. "Weather Information and the Potential for Intertemporal Adverse Selection in Crop Insurance," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 16(3), pages 441-451.
    4. Mason, Chuck & Hayes, Dermot J. & Lence, Sergio H, 2003. "Systemic risk in U.S. crop reinsurance programs," ISU General Staff Papers 200304010800001293, Iowa State University, Department of Economics.
    5. Mario J. Miranda & Joseph W. Glauber, 1997. "Systemic Risk, Reinsurance, and the Failure of Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 206-215.
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