Hail Insurance and Pesticide use in French agriculture: an empirical analysis of multiple risks management
This paper investigates the determinants of rapeseed hail insurance and pesticide use decisions using individual panel data set of French farms covering the period from 1993 to 2004. Economic theory suggests that insurance and prevention decisions are not independent due to risk reduction and/or moral hazard effects. Statistical tests show that the pesticide use and hail insurance demand are endogenous to each other. An econometric model involving two simultaneous equations with a mixed censored/continuous dependent variables is then estimated. Estimation results show that rapeseed insurance demand has a positive and significant effect on pesticide use and vice versa. Insurance demand is also positively influenced by the yield’s coefficient of variation and the loss ratio, and negatively influenced by proxies for wealth (including CAP subsidies) and activity diversification.
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