Modeling Exit and Entry of Farmers in a Crop Insurance Program

Juan H. Cabas, Akssell J. Leiva and Alfons Weersink

Agricultural and Resource Economics Review, 2008, vol. 37, issue 1

Abstract: This paper examines the factors influencing farmer participation in crop insurance schemes, but unlike previous studies that focus on total demand, participation is disaggregated into entrants and those exiting. Modeling entry and exit decisions separately illustrates that the effect of a given variable is often muted by aggregation. In addition, the approach in this paper distinguishes between price and yield variables rather than total returns and is consequently able to demonstrate that price variables are particularly important for farmers considering enrolling in crop insurance, while yield variables and other risk management opportunities are more important for farmers who have been in the program but are deciding to exit. The result suggests that moral hazard is reduced significantly by calculating the coverage yield level for an individual producer on the basis of a moving average of past yields for that farmer. While yield and its variance are particularly influential in the participation decision for farmers currently enrolled, its significant impact on the insurance decision for all farmers highlights the importance of crop insurance as a potential adaptation strategy to weather events.

Keywords: crop insurance; entry and exit; panel data; Risk and Uncertainty (search for similar items in EconPapers)
Date: 2008
View list of references

Downloads: (external link)
http://purl.umn.edu/44741 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ags:arerjl:44741

Access Statistics for this article

More articles in Agricultural and Resource Economics Review from Northeastern Agricultural and Resource Economics Association
Contact information at EDIRC.
Series data maintained by AgEcon Search ().