IDEAS home Printed from https://ideas.repec.org/a/pal/genrir/v47y2022i1d10.1057_s10713-021-00071-6.html
   My bibliography  Save this article

Subjective and objective risk perceptions and the willingness to pay for agricultural insurance: evidence from an in-the-field choice experiment in rural China

Author

Listed:
  • Hong Fu

    (Shandong University of Finance and Economics)

  • Yuehua Zhang

    (Zhejiang University)

  • Yinuo An

    (Cornell University)

  • Li Zhou

    (Nanjing Agricultural University)

  • Yanling Peng

    (Sichuan Agricultural University)

  • Rong Kong

    (Northwest Agriculture and Forestry University)

  • Calum G. Turvey

    (Cornell University)

Abstract

We conducted in-the-field choice experiments in China to investigate farmers’ willingness to pay for crop insurance and to determine how objective and subjective beliefs affect Willingness to Pay (WTP). We deploy three variants of the choice experiment using a priming mechanism on objective and subjective beliefs plus a control. We find that the cuing frame matters in that there are differences in WTP within five attributes and across variants. In terms of practical policy, our results suggest that farmers’ frame of reference toward objective and subjective risks can affect insurance demand.

Suggested Citation

  • Hong Fu & Yuehua Zhang & Yinuo An & Li Zhou & Yanling Peng & Rong Kong & Calum G. Turvey, 2022. "Subjective and objective risk perceptions and the willingness to pay for agricultural insurance: evidence from an in-the-field choice experiment in rural China," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 47(1), pages 98-121, March.
    • Handle: RePEc:pal:genrir:v:47:y:2022:i:1:d:10.1057_s10713-021-00071-6
    DOI: 10.1057/s10713-021-00071-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1057/s10713-021-00071-6
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1057/s10713-021-00071-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Steffen Andersen & John Fountain & Glenn Harrison & E. Rutström, 2014. "Estimating subjective probabilities," Journal of Risk and Uncertainty, Springer, vol. 48(3), pages 207-229, June.
    2. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    3. Johannes Spinnewijn, 2017. "Heterogeneity, Demand for Insurance, and Adverse Selection," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 308-343, February.
    4. Bruce A. Babcock, 2015. "Using Cumulative Prospect Theory to Explain Anomalous Crop Insurance Coverage Choice," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(5), pages 1371-1384.
    5. Michael K. Ndegwa & Apurba Shee & Calum G. Turvey & Liangzhi You, 2020. "Uptake of insurance-embedded credit in presence of credit rationing: evidence from a randomized controlled trial in Kenya," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 80(5), pages 745-766, June.
    6. Daniel McFadden, 2001. "Economic Choices," American Economic Review, American Economic Association, vol. 91(3), pages 351-378, June.
    7. Joseph W. Glauber, 2004. "Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1179-1195.
    8. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
    9. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555, January.
    10. Johnson, Eric J & Hershey, John & Meszaros, Jacqueline & Kunreuther, Howard, 1993. "Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 35-51, August.
    11. Umarov, Alisher & Sherrick, Bruce J., 2005. "Farmers' Subjective Yield Distributions: Calibration and Implications for Crop Insurance Valuation," 2005 Annual meeting, July 24-27, Providence, RI 19396, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Howard Kunreuther & Mark V. Pauly, 2018. "Dynamic Insurance Decision-Making for Rare Events: The Role of Emotions," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 43(2), pages 335-355, April.
    13. David A. Bessler, 1980. "Aggregated Personalistic Beliefs on Yields of Selected Crops Estimated Using ARIMA Processes," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 62(4), pages 666-674.
    14. Octavio A. Ramirez & Carlos A. Carpio, 2012. "Premium estimation inaccuracy and the actuarial performance of the US crop insurance program," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(1), pages 117-133, May.
    15. Apurba Shee & Calum G. Turvey & Ana Marr, 2021. "Heterogeneous Demand and Supply for an Insurance‐linked Credit Product in Kenya: A Stated Choice Experiment Approach," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(1), pages 244-267, February.
    16. Hsee, Christopher K & Kunreuther, Howard C, 2000. "The Affection Effect in Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 141-159, March.
    17. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    18. James W. Pease & Ernest W. Wade & Jerry S. Skees & Chandra M. Shrestha, 1993. "Comparisons between Subjective and Statistical Forecasts of Crop Yields," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 15(2), pages 339-350.
    19. Glenn W. Harrison & Jia Min Ng, 2018. "Welfare effects of insurance contract non-performance," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 43(1), pages 39-76, May.
    20. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    21. Calum G Turvey & Xin Gao & Rong Nie & Linping Wang & Rong Kong, 2013. "Subjective Risks, Objective Risks and the Crop Insurance Problem in Rural China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 38(3), pages 612-633, July.
    22. Calum G. Turvey & Rong Kong, 2009. "Business and financial risks of small farm households in China," China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 1(2), pages 155-172, January.
    23. John Rose & Michiel Bliemer, 2013. "Sample size requirements for stated choice experiments," Transportation, Springer, vol. 40(5), pages 1021-1041, September.
    24. Babcock, Bruce, 2015. "Using Prospect Theory to Explain Anomalous Crop Insurance Coverage Choice," 2015 Allied Social Sciences Association (ASSA) Annual Meeting, January 3-5, 2015, Boston, Massachusetts 189682, Agricultural and Applied Economics Association.
    25. Sherrick, Bruce J., 2002. "The Accuracy Of Producers' Probability Beliefs: Evidence And Implications For Insurance Valuation," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 27(1), pages 1-17, July.
    26. H. Holly Wang & Lu Liu & David L. Ortega & Yu Jiang & Qiujie Zheng, 2020. "Are smallholder farmers willing to pay for different types of crop insurance? An application of labelled choice experiments to Chinese corn growers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(1), pages 86-110, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yuyun Hidayat & Sukono & Betty Subartini & Nida Khairunnisa & Aceng Sambas & Titi Purwandari, 2022. "An Estimated Analysis of Willingness to Wait Time to Pay Rice Agricultural Insurance Premiums Using Cox’s Proportional Hazards Model," Mathematics, MDPI, vol. 10(21), pages 1-16, October.
    2. Gómez-Limón, José A. & Granado-Díaz, Rubén, 2023. "Assessing the demand for hydrological drought insurance in irrigated agriculture," Agricultural Water Management, Elsevier, vol. 276(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Haghani, Milad & Bliemer, Michiel C.J. & Hensher, David A., 2021. "The landscape of econometric discrete choice modelling research," Journal of choice modelling, Elsevier, vol. 40(C).
    2. Shin, Soye & Magnan, Nicholas & Mullally, Conner & Janzen, Sarah, 2022. "Demand for Weather Index Insurance among Smallholder Farmers under Prospect Theory," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 82-104.
    3. Hongli Feng & Xiaodong Du & David A. Hennessy, 2020. "Depressed demand for crop insurance contracts, and a rationale based on third generation Prospect Theory," Agricultural Economics, International Association of Agricultural Economists, vol. 51(1), pages 59-73, January.
    4. Vincenzina Caputo & Jayson L Lusk & Rodolfo M Nayga, 2020. "Am I Getting a Good Deal? Reference‐DependentDecision Making When the Reference Price Is Uncertain," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(1), pages 132-153, January.
    5. Christoph Duden & Oliver Mußhoff & Frank Offermann, 2023. "Dealing with low‐probability shocks: The role of selected heuristics in farmers’ risk management decisions," Agricultural Economics, International Association of Agricultural Economists, vol. 54(3), pages 382-399, May.
    6. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    7. Umarov, Alisher & Sherrick, Bruce J., 2005. "Farmers' Subjective Yield Distributions: Calibration and Implications for Crop Insurance Valuation," 2005 Annual meeting, July 24-27, Providence, RI 19396, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Zahra Murad & Martin Sefton & Chris Starmer, 2016. "How do risk attitudes affect measured confidence?," Journal of Risk and Uncertainty, Springer, vol. 52(1), pages 21-46, February.
    9. Li, Baibing & Hensher, David A., 2017. "Risky weighting in discrete choice," Transportation Research Part B: Methodological, Elsevier, vol. 102(C), pages 1-21.
    10. Xiaodong Du & Hongli Feng & David A. Hennessy, 2017. "Rationality of Choices in Subsidized Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 732-756.
    11. Eran Ben-Elia & Robert Ishaq & Yoram Shiftan, 2013. "“If only I had taken the other road...”: Regret, risk and reinforced learning in informed route-choice," Transportation, Springer, vol. 40(2), pages 269-293, February.
    12. Andrew Royal, 2017. "Dynamics in risk taking with a low-probability hazard," Journal of Risk and Uncertainty, Springer, vol. 55(1), pages 41-69, August.
    13. David H. Krantz & Howard C. Kunreuther, 2007. "Goals and plans in decision making," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 137-168, June.
    14. Hamzeh Alizadeh & Bilal Farooq & Catherine Morency & Nicolas Saunier, 2018. "On the role of bridges as anchor points in route choice modeling," Transportation, Springer, vol. 45(5), pages 1181-1206, September.
    15. Francisco Rosas & Mariana Sans & Santiago Arana, 2018. "The effect of irrigation on income volatility reduction: a prospect theory approach," Documentos de Investigación 118, Universidad ORT Uruguay. Facultad de Administración y Ciencias Sociales.
    16. Andreas Richter & Jochen Ruß & Stefan Schelling, 2019. "Insurance customer behavior: Lessons from behavioral economics," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 183-205, July.
    17. Géraldine Bocquého & Julien Jacob & Marielle Brunette, 2020. "Prospect theory in experiments : behaviour in loss domain and framing effects," Working Papers hal-02987294, HAL.
    18. Mohit Anand & Ruiqing Miao & Madhu Khanna, 2019. "Adopting bioenergy crops: Does farmers’ attitude toward loss matter?," Agricultural Economics, International Association of Agricultural Economists, vol. 50(4), pages 435-450, July.
    19. Levon Barseghyan & Francesca Molinari & Ted O'Donoghue & Joshua C. Teitelbaum, 2013. "The Nature of Risk Preferences: Evidence from Insurance Choices," American Economic Review, American Economic Association, vol. 103(6), pages 2499-2529, October.
    20. Zhao, Shuoli & Skevas, Teo & Chai, Yuan & Tack, Jesse B., 2020. "Crop Insurance Decision under Expected Revenue," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304574, Agricultural and Applied Economics Association.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:genrir:v:47:y:2022:i:1:d:10.1057_s10713-021-00071-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave-journals.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.