Rank-dependent preferences, social network and crop insurance uptake: field experimental evidence from rural China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ruojin Zhang ◽  
Dan Fan ◽  
Gene Lai ◽  
Junqian Wu ◽  
Jungong Li
Keyword(s):  
Risk Aversion ◽  
Likelihood Function ◽  
Rural China ◽  
Crop Insurance ◽  
Participation Rate ◽  
Southwestern China ◽  
Risk Attitudes ◽  
Agricultural Insurance ◽  
Content Type ◽  
Rice Farmers

PurposeAgricultural insurance has become increasingly important to farmers' livelihood and production in rural China. Yet despite the enormous governmental subsidizing efforts, the insurance participation rate remains below expectations. This study revisits the linkage between farmers' risk attitudes and crop insurance utilization by providing a cross-cutting perspective such that the role of risk aversion is re-scrutinized in Chinese “kindred” village economies.Design/methodology/approachThe authors administrated a lottery-based multiple price list (MPL) experiment by recruiting rice farmers from 12 villages in Sichuan province in southwestern China. Using the experimental data, farmers' risk attitudes are assessed and coefficients of risk aversion are estimated within the rank-dependent expected utility (RDEU) framework by maximizing a structured likelihood function.FindingsThis study provides substantiating evidence that rice farmers in southwestern China exhibit relatively high risk aversion. The authors also provide suggestive evidence of the positive relationship between farmers' risk aversion and crop insurance utilization. In addition, findings reveal that kinship network has a negative effect on crop insurance utilization, such that farmers who are connected in higher degree of kinship network have lower likelihood of crop insurance utilization, which suggests that kinship network may be substitute for formal crop insurance. Result also demonstrates that the incentive effect of risk aversion on farmers' crop insurance participation manifests differently depending on the degree of kinship network in rural China.Originality/valueThis study provides a cross-cutting perspective by scrutinizing the effects of farmers' risk attitudes and kinship network on crop insurance participation in rural China, which has received relatively little attention in the literature. Conclusions on the effects of risk aversion on crop insurance participation have been mixed in previous studies. In addition, to the best of our knowledge, little has been done to explicitly examine the influence of social proximity and networks on farmers' insurance uptake. This study attempts to fill both gaps. This study provides new insights which might shed lights on the understanding of farmers' crop insurance participation in rural China.

Building insurance through an NGO

2016 ◽  
Vol 76 (1) ◽  
pp. 119-139 ◽  
Author(s):  
Marie-Christine Bélanger
Keyword(s):  
Design Methodology ◽  
Smallholder Farmers ◽  
Crop Insurance ◽  
Specific Training ◽  
Close Collaboration ◽  
Agricultural Insurance ◽  
Content Type ◽  
Level Of Education ◽  
Challenges And Opportunities

Purpose – This paper is based on a crop insurance implementation currently undergoing in Haiti. The purpose of this paper is to present the development of a program tailored to rice production in the Artibonite Valley, the challenges and opportunities that are arising from the exercise as well as pitfalls and ways to avoid them. Design/methodology/approach – The Système de Financement et d’Assurances Agricoles en Haïti’s approach for the development of crop insurance is in accordance with 13 concepts considered essential in the implementation of agricultural insurance programs. The case study is presented through each of these 13 fundamental concepts. Findings – The paper provides an insight on challenges any organization will face when implementing crop insurance for smallholder farmers. It points out notably that close collaboration of executing agencies with local partners is essential from data collection through insurance development and delivery and that all participants should receive a specific training tailored to their level of education and understanding. Social implications – Haiti is one of the poorest countries on the planet. Smallholder farmers could benefit a lot from crop insurance. It could help them stabilize their income when facing crop losses due to natural hazards or uncontrollable natural events. Originality/value – This paper fulfills an identified need to share real case studies exposing challenges faced when implementing crop insurance for smallholder farmers.

The US crop insurance program and WTO disciplines

2016 ◽  
Vol 76 (1) ◽  
pp. 6-14 ◽  
Author(s):  
Joseph William Glauber
Keyword(s):  
Dispute Settlement ◽  
Crop Insurance ◽  
Developed Countries ◽  
Eligibility Criteria ◽  
Agricultural Insurance ◽  
Content Type ◽  
Insurance Program ◽  
The Us ◽  
Domestic Support ◽  
Green Box

Purpose – The purpose of this paper is to examine the US crop insurance programs in the context of domestic support disciplines under the World Trade Organization (WTO). Crop insurance has become an integral part of many domestic support programs, not just in developed countries, but in important emerging markets as well. An often-cited impetus for the growth in insurance program is the potential treatment of such programs as exempt from WTO reduction commitments. Design/methodology/approach – A detailed examination of the so-called “green box provisions” of the Uruguay Round Agreement on Agriculture is presented with particular emphasis on eligibility criteria for crop yield and revenue insurance programs. Findings – While WTO rules potentially shield green box policies from reduction, few developed countries have notified agricultural insurance policies under Annex 2. Moreover, crop insurance programs have been challenged in recent WTO dispute settlement cases and domestic countervailing duty investigations. Originality/value – The paper presents a unique perspective on a program which has become the largest single farm program in the USA.

Factors differentiating the level of crop insurance at Polish farms

2018 ◽  
Vol 78 (2) ◽  
pp. 209-222 ◽  
Author(s):  
Adam Wąs ◽  
Pawel Kobus
Keyword(s):  
General Population ◽  
Risk Aversion ◽  
Crop Insurance ◽  
Methodological Approach ◽  
Expected Utility Theory ◽  
Yield Losses ◽  
Data Set ◽  
Content Type ◽  
Economic Determinants ◽  
Economic Size

Purpose The purpose of this paper is to identify the factors that determine demand for crop insurance in Poland. Design/methodology/approach To examine the determinants of decisions regarding crop insurance, the authors used logistic regression. The base source of data for the analysis was the 2013 FADN sample. The scale of yield losses, the indemnities received and the Arrow-Pratt risk aversion coefficient were examined in a representative sample of farms in consecutive years in the period 2004-2013. Findings Losses are the major determinants of crop insurance uptake. Additionally, it was observed that the economic determinants are in line with the expected utility theory, while contrary to expectations, farmer’s characteristics such as education level, age or even risk aversion did not prove to have any influence on crop insurance uptake. Research limitations/implications The FADN sample is representative as regards the type of farming, economic size of farm and location of the farm. Every farm in the sample represents a specific number of similar farms in the population. However, it must be emphasised that the representativeness of the sample with respect to other determinants, e.g., yield losses in previous years, using crop insurance or the farmers’ age and education has not been verified due to lack of data characterizing the general population with regard to these factors. Practical implications It could be argued that the system of crop insurance subsidies should be targeted to encourage the farmers who previously had not used insurance to join the system. Originality/value The paper presents the analysis of crop insurance uptake in a country with a strongly polarised agriculture. The Polish farm sector consists of 1.4 million farms with sizes ranging from 1 ha to over a few thousands hectares. The research is based on a data set of 5,202 farms which contains data from ten years (2004-2013). The novelty of the methodological approach is that it includes information on the number of farms represented by every farm in the FADN sample in the Horvitz-Thompson estimator in order to achieve results which are valid for the general population of Polish farms.

Exploring the relationship between investment choices, cognitive abilities risk attitudes and financial literacy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Mushafiq ◽  
Shamsa Khalid ◽  
Muhammad Khalid Sohail ◽  
Tayyebah Sehar
Keyword(s):  
Risk Aversion ◽  
Financial Literacy ◽  
Cognitive Abilities ◽  
Risk Attitudes ◽  
Positive Contribution ◽  
Content Type ◽  
Risky Investment ◽  
Investment Intentions ◽  
The Relationship ◽  
Investment Choices

PurposeThe main purpose of this study is to investigate the investment choices' relationship with cognitive abilities, risk aversion, risky investment intentions, subjective financial literacy and objective financial literacy.Design/methodology/approachTo examine the relationship, two investment choices were given to 256 subjects from Pakistan. Questionnaire had total 20 questions for measuring five variables. To review this nexus, discriminant analysis was used as to explore the depth of the nexus that is the ability of the variables to predict the investment choices.FindingsThis study establishes the findings that Investment choices are guided by risk aversion, risky investment intentions, financial literacy (subjective and objective) and cognitive abilities. The risk aversion has negative relation to investment choices and other variables depict positive relationship to with investment choices.Practical implicationsThis study provides a new and useful understanding into the existing literature on investment choices. The results are significant as the cognitive abilities show a positive contribution to the investment choices. This is point of significance as the portfolio managers and advisors would get help in regards of advising investments as they are aware what factors impact the investment choices.Originality/valueThis study is novel in its nature to evaluate investment choices using the cognitive ability alongside risk attitudes and financial literacy.

Risk aversion in crop insurance program purchase decisions

2017 ◽  
Vol 9 (1) ◽  
pp. 62-80 ◽  
Author(s):  
Kaiyu Lyu ◽  
Thomas J. Barré
Keyword(s):  
Risk Aversion ◽  
Crop Insurance ◽  
Probit Model ◽  
Data Sets ◽  
Purchase Decisions ◽  
Cross Sectional ◽  
Maize Production ◽  
Content Type ◽  
Interaction Terms

Purpose The purpose of this paper is to contribute to the aforementioned literature on the linkage between economic activity and human preference by estimating the cross-sectional determinants of farmers’ participation in participation in crop insurance programs (CIPs) and identifying the impediments preventing the remaining farmers from participating. Design/methodology/approach Using the unique data sets of risk preference experiments and maize producer surveys pertaining to the maize production areas of China, this paper explores the determinants of farmers’ CIPs and scrutinizes the role of risk aversion in farmers’ CIP purchase decisions under the expected utility maximization framework. And a “non-zero threshold probit model” is used for the analysis. Findings The results show that risk aversion plays an important role in CIP purchase decision-making, not only in the form of its direct effect but also with regard to the interaction term and expected loss. Furthermore, if the insured amount is high enough, then risk aversion will no longer affect insurance purchase. Additionally, purchase experience, CIP environment (village purchase ratio), and contract items (insured amounts) are significant determinates in these decisions. There is no significant evidence to suggest that serious adverse selection exists in the sampling areas. Originality/value One theoretical model is established which considered not only general variables like farmers’ production and household information, but also conditions and terms in the insurance policies. The unique experimental method is used to measure farmers’ risk aversion. Both the role of risk aversion and its’ interaction terms with others in CIP participation are scrutinized to identify complicated influences under the context of real society.

Do Farmers Value Insurance Against Extreme Droughts and Floods? Evidence from Odisha, India

2020 ◽  
pp. 097215092095761
Author(s):  
Asis Kumar Senapati
Keyword(s):  
Risk Aversion ◽  
Crop Insurance ◽  
Management Strategies ◽  
Probit Model ◽  
Insurance Companies ◽  
Agricultural Insurance ◽  
Insurance Product ◽  
Risk Management Strategies ◽  
Willingness To Purchase

Crop insurance provides farmers with financial support and coverage in the event of extreme natural disasters. Despite more than two decades of disseminating the knowledge in India, crop insurance adoption rates remain low with evidence of dis-adoption. This article assesses farm households’ willingness to insure their crops as well as ability to pay for an insurance product designed to help rural Indian farmers manage flood- and drought-associated risks. The objective of this study is to assess the determinants of farmers’ participation in market-based agricultural insurance living in coastal and rainfed areas prone to risky weather. It is hypothesized that crop insurance would lead to less risk-averse behaviour and more efficient use of farm resources. Using probit model, the study highlights several determinants of willingness to insure and empirically verify the role of risk aversion in insurance purchase decisions. The lottery-choice experiment has been applied by the author for evaluating risk attitudes of sample household. Empirical results suggest that as regards farmers’ risk preferences, risk aversion actually plays an important role even though not directly but in interactive terms with expected losses which, in turn, significantly influencing farmers’ willingness to purchase the insurance product. The study underlines significant influence of insurance history on future crop insurance choice decision. Farmers’ insurance purchase history can help insurance companies, in order to devise effective crop insurance programmes in the future. Similarly, the study also foregrounds the significant role of insured amount in insurance contracts, influencing farmers’ crop insurance purchase decision in both rainfed and irrigated regions. It can therefore help insurance companies to revise the contract items or reform the existing subsidies. Finally, the study goes on to recommend the importance of the knowledge of informal risk management strategies followed by farmers before offering them the formal insurance product and the necessity of the insurance companies in understanding the farmers’ behaviour while designing the insurance product.

Farmers’ responses to the changes in Hungarian agricultural insurance system

2018 ◽  
Vol 78 (2) ◽  
pp. 275-288 ◽  
Author(s):  
Anna Zubor-Nemes ◽  
József Fogarasi ◽  
András Molnár ◽  
Gábor Kemény
Keyword(s):  
Risk Management ◽  
Panel Data ◽  
Technical Efficiency ◽  
Management System ◽  
Crop Insurance ◽  
Two Stage ◽  
Agricultural Insurance ◽  
Content Type ◽  
Risk Management System ◽  
The Relationship

Purpose The purpose of this paper is to investigate the role of crop insurance among Hungarian crop farmers and the responses to the introduction of the two-scheme risk management system. Specifically, first, it examines the economic and environmental factors affecting the willingness of farmers to contract crop insurance. Second, it reveals the relationship between having crop insurance and technical efficiency of crop producing farms. Design/methodology/approach Probit models of panel data are applied to explore the factors of insurance decisions. The relationship between efficiency and insurance is investigated with two-stage data envelopment analysis (DEA) model with double bootstrap using panel data for the 2001 to 2014 period. Findings The results of Probit model estimations show that the education, the size, the indebtedness of crop producing farms and the new two-scheme risk management system are in positive correlation, while the concentration of farming activity are in negative correlation with the crop insurance contracting. The estimations of two-stage DEA model reveal that crop producing farms with an agricultural insurance contract are more efficient than the farmers without using this risk management tool. Originality/value Empirical investigation of the influencing factors of agricultural insurance demand in Hungary and the examination of the relationship between insurance and technical efficiency may contribute to the development of Hungarian risk management system.

Gain attraction in the presence of social interactions

2017 ◽  
Vol 9 (2) ◽  
pp. 105-127 ◽  
Author(s):  
Rattaphon Wuthisatian ◽  
Federico Guerrero ◽  
James Sundali
Keyword(s):  
Theoretical Model ◽  
Risk Aversion ◽  
Social Interactions ◽  
Prospect Theory ◽  
Value Function ◽  
Peer Group ◽  
Reference Points ◽  
Risk Attitudes ◽  
Content Type ◽  
Social Settings

Purpose The purpose of this paper is to suggest that a fundamental cause of market booms and busts is that investor risk attitudes change during market booms. Specifically, the authors propose that an investor’s risk aversion falls as (s)he attempts to “keep up with the Joneses.” This paper studies changing risk attitudes induced by social interactions, and shows that risk-seeking behavior that is initially successful may induce copycat behavior and lead individuals in the same peer group to reduce their degree of risk aversion to attempt to obtain similar rewards, a phenomenon we call “Gain attraction in the presence of social interactions.” Design/methodology/approach The authors propose a new theoretical model that incorporates the social interaction term into the value function of prospect theory. The modified value function empowers the standard prospect theory by introducing the idea that people often compare themselves to others and then compare their gains to the gains of others. The model predicts that, if people exhibit some degree of envy, they will treat the observed utility achieved by others as destination points and will reposition themselves to the new reference points, and at that point their willingness to accept risk dramatically increases. Findings The theoretical model is tested empirically against experimental data and survey data. Consistent with the theoretical prediction, the experimental results suggest that, after subjects observed the behavior of the leading investor in the controlled laboratory condition, there was a significant increase in risk-taking behavior. The survey results further confirm that envy is an emotional force behind the dissatisfaction and disappointment among investors when they miss available opportunities that others were able to take advantage of. Originality/value This study provides evidence that investment decisions are not made in a social vacuum by isolated individuals, but rather in social settings in which individuals are influenced by the actions and outcomes of their peers. The study also opens up a new research avenue that the reduction in risk aversion induced by peer effects may be an important element explaining how greed is transmitted across the economy during times of financial boom, thus helping to fuel the flames of financial crises.

High liabilities or heavy subsidies

2017 ◽  
Vol 9 (4) ◽  
pp. 588-606 ◽  
Author(s):  
Tao Ye ◽  
Ming Wang ◽  
Wuyang Hu ◽  
Yangbin Liu ◽  
Peijun Shi
Keyword(s):  
Social Welfare ◽  
Choice Experiment ◽  
Rural China ◽  
Crop Insurance ◽  
Actual Condition ◽  
Pareto Improvement ◽  
Policy Simulation ◽  
Content Type ◽  
Insurance Product ◽  
Practical Implications

Purpose Understanding farmers’ preferences for crop insurance attributes is crucial in designing better insurance products and guiding government policies but such research is lacking, particularly in developing countries. The paper aims to discuss these issues. Design/methodology/approach This study uses a survey featuring a discrete choice experiment and policy simulation. Findings Overall, crop insurance has positive values to farmers, although preference is heterogeneous based on socioeconomic characteristics and risk position. Policy simulation confirms the roles of liability in strengthening insurance participants’ welfare and premium subsidy in encouraging participation. Introducing one more product into the market can accommodate farmers’ diverse needs and lead to increases in both aggregated social welfare and participation while maintaining the current level of government expense in subsidy – a potential Pareto improvement. Research limitations/implications Methodology employed is not the most novel in the choice experiment literature as many of the advances in choice experiment design could not be applied due to the actual condition in rural China and Chinese farmers’ capability in understanding the experiment. Practical implications The results indicate that the current single-product market structure using “low liability with high premium subsidies” cannot accommodate the diverse needs among farmers. Providing more varieties of liability-subsidy combinations, e.g. a high liability with low premium subsidy insurance product, can substantially improve participants’ welfare with little impact to the probability of participation. Originality/value The authors believe that this is one of the very few studies that that analyze farmers’ preferences and willingness to pay for the attributes of crop insurance products. It also shows how crop insurance product design can build upon farmers’ choices to achieve a potential Pareto improvement in aggregated social welfare in the context of a fast-developing crop insurance market.

scholarly journals Determinants of Rice Farmers’ Risk-attitudes in Rural Ghana: An Operational Domain Scale Approach

2018 ◽  
Vol 5 (4) ◽  
pp. 116 ◽  
Author(s):  
Kwame Asiam Addey
Keyword(s):  
Land Tenure ◽  
Farm Income ◽  
Risk Attitudes ◽  
Agricultural Insurance ◽  
Rice Farmers ◽  
Rural Ghana ◽  
Tenure System ◽  
Land Tenure System ◽  
The Relationship ◽  
Greater Accra Region

Production of rice in Ghana has been marred by various production risks which reduce the yield potentials of farmers. The introduction of agricultural insurance presents an opportunity to mitigate these risks. However, individual preferences for risk-mitigating strategies are dependent on their risk attitudes. And this is affected by a broad spectrum of characteristics. This study, therefore analysed the determinants of the risk attitudes of rice farmers in the Greater Accra region of Ghana. Their risk-attitudes were obtained using an operational domain-scaled statement set. Majority of the respondents (96.14%) were found to be risk averse. The gender, household size, land tenure system and the ratio of non-farm income to rice farm income were found to significantly affect the probability of risk neutrality whiles marital status, land tenure system and the probability of failure to achieve target yields were observed to significantly influence the probability of being risk-loving. Further study is recommended to identify the relationship between these risk attitudes and adoption of crop insurance.

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