The Demand for Multiple Peril Crop Insurance: Evidence from Montana Wheat Farms

Vincent H. Smith and Alan E. Baquet

American Journal of Agricultural Economics, 1996, vol. 78, issue 1, 189-201

Abstract: An econometric analysis of the demand for multiple peril crop insurance is carried out for a sample of 370 Montana wheat farms. The study is the first to model the farm's participation and coverage-level decisions separately through Heckman two-stage estimation procedures. These decisions are shown to be determined in different ways. In addition, farms with positive expected returns from insurance make coverage-level decisions in different ways from farms with negative expected returns. These differences indicate that adverse selection effects limit the efficacy of across-the-board premium rate increases as mechanisms for reducing loss ratios. Copyright 1996, Oxford University Press.

Date: 1996
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