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Understanding farmers’ valuation of agricultural insurance: Evidence from Vietnam

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  • King, Michael
  • Singh, Anuj Pratap
Abstract
Agricultural index insurance offers smallholder farmers the potential to manage pervasive weather and environmental risks, and smooth income over time. Yet despite the potential benefits, take-up of index insurance has been largely disappointing. We employ a novel approach to investigate the reasons for low demand and we confirm that farmers systematically undervalue agricultural index insurance. We find that access to private transfers acts as a substitute for insurance demand, while membership of a farmer’s union helps explain why farmers value index insurance. Finally, we find that individual riskiness is positively related to willingness to pay for agricultural index insurance and interpret this as further evidence that, within the context of basis risk and lack of trust in insurers, farmers valuation of agricultural index insurance can be better understood through behavioural theories such as ambiguity aversion or prospect theory.

Suggested Citation

  • King, Michael & Singh, Anuj Pratap, 2020. "Understanding farmers’ valuation of agricultural insurance: Evidence from Vietnam," Food Policy, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:jfpoli:v:94:y:2020:i:c:s0306919220300452
    DOI: 10.1016/j.foodpol.2020.101861
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    2. Ruggiero Rippo & Simone Cerroni, 2023. "Farmers' participation in the Income Stabilisation Tool: Evidence from the apple sector in Italy," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(1), pages 273-294, February.
    3. Williams Ali & Awudu Abdulai & Renan Goetz & Victor Owusu, 2021. "Risk, ambiguity and willingness to participate in crop insurance programs: Evidence from a field experiment," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(3), pages 679-703, July.
    4. Stoeffler, Quentin & Opuz, Gülce, 2022. "Price, information and product quality: Explaining index insurance demand in Burkina Faso," Food Policy, Elsevier, vol. 108(C).
    5. Rippo, Ruggiero & Cerroni, Simone, 2021. "Farmers’ Participation in the Income Stabilization Tool: Evidence from the Apple Sector in Italy," 2021 Conference, August 17-31, 2021, Virtual 315191, International Association of Agricultural Economists.
    6. Hengli Wang & Hong Liu & Danyang Wang, 2022. "Agricultural Insurance, Climate Change, and Food Security: Evidence from Chinese Farmers," Sustainability, MDPI, vol. 14(15), pages 1-17, August.
    7. Shaolong Zeng & Bingying Qi & Minglin Wang, 2022. "Agricultural Insurance and Agricultural Economic Growth: The Case of Zhejiang Province in China," IJERPH, MDPI, vol. 19(20), pages 1-21, October.
    8. Ivashkiv, Iryna & Korol, Svitlana & Lyashenko, Oksana & Sadovska, Iryna & Nadvynychnyy, Sergiy, 2021. "Financial and economic evaluation of agricultural insurance market in Ukraine," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 7(3), September.
    9. Cai, Rong & Ma, Jie & Wang, shujuan & Cai, Shukai, 2024. "Can crop insurance help optimize farmers’ decisions on pesticides use? Evidence from family farms in East China," Journal of Asian Economics, Elsevier, vol. 92(C).
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    More about this item

    Keywords

    Agricultural insurance; Willingness to pay; Expected utility theory; Risk aversion; Social capital; Remittances;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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