The impact of farmers' risk preferences on the design of an individual yield crop insurance

Laurent Piet () and Douadia Bougherara

No 16-03, Working Papers SMART from INRAE UMR SMART

Abstract: Kahneman and Tversky's Cumulative Prospect Theory (CPT) has proved to be better suited for representing risk preferences than von Neumann and Morgenstern's Expected Utility Theory (EUT). We argue that neglecting this may explain to some extent why farmers do not contract crop insurance as much as they are expected to. We model the decision to contract an individual yield crop insurance for a sample of 186 French farmers. We show that 21% of the farmers who would be expected to contract assuming that their preferences are EUT, would actually not do so if their true preferences were in fact CPT.

Keywords: yield; crop insurance; cumulative prospect theory; premium subsidy; France (search for similar items in EconPapers)
JEL-codes: D81 Q10 Q12 Q18 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2016
New Economics Papers: this item is included in nep-agr and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://ageconsearch.umn.edu/bitstream/233495/2/wp16-03.pdf (application/pdf)

Related works:
Working Paper: The impact of farmers' risk preferences on the design of an individual yield crop insurance (2016)
Working Paper: The Impact of Farmers’ Risk Preferences on the Design of an Individual Yield Crop Insurance (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:rae:wpaper:201603

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