How does price insurance alleviate the fluctuation of agricultural product market? A dynamic analysis based on cobweb model

Jianru Fu, Ruiyuan Shen and Chao Huang
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Jianru Fu: School of Finance, Jiangxi Normal University, Jiangxi Province, Nanchang, China
Ruiyuan Shen: School of Finance, Jiangxi Normal University, Jiangxi Province, Nanchang, China
Chao Huang: School of Finance, Jiangxi Normal University, Jiangxi Province, Nanchang, China

Agricultural Economics, 2023, vol. 69, issue 5, 202-211

Abstract: Food security is of great importance to all countries. Correspondingly, agricultural price insurance is an important tool to maintain food security. This study adopts the traditional spider web model to establish a mathematical framework for exploring the internal mechanism of agricultural price insurance, which can ease the volatility of the agricultural market. Then, the influence of agricultural price insurance on the supply of agricultural products is examined. The findings show that the supply elasticity of most agricultural products is greater than the demand elasticity, with agricultural product markets presenting a natural divergence. Agricultural price insurance changes the supply curve of agricultural products by reducing their supply elasticity, subsequently positively affecting the reduction of price fluctuation and the stabilisation of outputs. Agricultural price insurance can even change agricultural product markets under certain conditions, allowing a shift from divergence to convergence. Moreover, by adjusting the insurance parameters of agricultural prices, the equilibrium yield and price can be changed, and the planting area and income of farmers can be maximised. The mathematical basis for agricultural insurance derived in this study can support food security strategies at the national level and further provide a theoretical basis to formulate policies and departmental measures.

Keywords: agricultural product supply elasticity; agricultural risk; crop insurance; food security (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:caa:jnlage:v:69:y:2023:i:5:id:107-2023-agricecon

DOI: 10.17221/107/2023-AGRICECON

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