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Effects of farm characteristics and government disaster assistance on multiple-peril crop insurance purchases by Iowa crop farmers

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  • Khojasteh, Khosrow

Abstract

The present federal crop insurance program has been characterized by low farmer participation and high government costs. It has been frequently argued that one of the major factors causing the poor participation rate is the continued availability of disaster relief payments, whereby the ad hoc disaster assistance programs help support producers' beliefs that a widespread natural disaster will be accompanied by government assistance;The purpose of this study was to develop and empirically estimate probability models that could explain Iowa farmers' behavior regarding the purchase of multiple-peril crop insurance. The models under study included both linear and nonlinear single- equations. While components of decision theory under risk have been woven into the models, the focus was shifted away from the selection of a utility function and towards the selection of indicators of risk attitude and the amount of risk;Using socio-economic measures from a sample of Iowa farmers for 1988 and 1989 crop years as the exogenous variables, the study examined the purchasing behavior of the sample farmers during a period of time when one of the largest government disaster assistance programs was underway. The intent of this study was to research, among other things, the effect of government disaster assistance payments on farmers' participation in the multiple-peril crop insurance program;This study established significant association between the purchase of multiple-peril crop insurance and some socio-economic factors. It found that the county of operation, age of the farm operator, receipt of government disaster assistance payments, total acres under operation, total gross sales and net worth of the farming operation, rate-of-return on assets after taxes, and the farmer's political view about the course of change in government policy were significant factors in determining which farmers will decide to purchase crop insurance;This study further explained the role of government disaster payments in the purchase of crop insurance and concluded that the receipt of such payments, given at the time of a disaster, encouraged farmers to participate in the federal crop insurance program. However, it may also create false expectations of future government disaster payments, which in this case would have a negative impact on the likelihood of farmers' participation in the federal crop insurance program. This negative impact is possibly more detrimental, in terms of future enrollment, for farmers who have not previously participated in MPCI.

Suggested Citation

  • Khojasteh, Khosrow, 1992. "Effects of farm characteristics and government disaster assistance on multiple-peril crop insurance purchases by Iowa crop farmers," ISU General Staff Papers 1992010108000010841, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:1992010108000010841
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