Livestock insurance, moral hazard, and farmers’ decisions: a field experiment among hog farms in China

Abstract

Moral hazard is believed to influence farmers' production decisions and undermine the effectiveness of insurance programmes. In this study, a 2-year field experiment is conducted among hog farms in four townships in China to investigate the effects of a government-subsidised insurance programme on farmers' decisions and production outcomes. A joint estimation procedure combining propensity score matching with difference-in-difference is deployed to control for selection bias caused by observable and unobservable heterogeneity between treatment and control groups. We find robust evidence that this insurance programme has led to increased hog mortality rates, suggesting the possible presence of hazardous actions. Meanwhile, hog stock levels have remained unaffected by insurance participation, contradicting findings in previous studies. Furthermore, insurance participation is found to increase farmers' willingness to report animal diseases to governments, thereby facilitating government efforts to prevent and monitor outbreaks of animal disease epidemics.

Travellers’ willingness to pay and perceived value of time in ride-sharing: an experiment on China

“…A plausible explanation is that tourism in China is still a comparatively luxury experience for citizens and that they attach a high value to their travel time at tourism destinations. Thus, there are potential differences in the role time plays in the decision-making process (Rao, 2018;Rao et al, 2019;Rao & Zhang, 2020). It is suggested that this phenomenon warrants further research in the hospitality and tourism fields and more studies in other contexts to better understand travellers' consumer behaviour.…”

The influence of past experience on farmers’ preferences for hog insurance products: a natural experiment and choice experiment in China

“…Our experiment includes members from a specific group that had actually purchased hog insurance, and another that did not. We surmise that farmers with prior exposure to hog insurance purchases would reveal preferences that are different 2 The context as well as the natural experiment in our study are the same as in Rao and Zhang (2020) but the focus of these two studies is different. Specifically, Rao and Zhang mainly examined the impact of livestock insurance on farmers' hazardous actions as well as production decisions by exploiting a twoyear natural experiment.…”

“…Ensuring sufficient pork supply remains a top concern of the Chinese government (Chen and Wang 2013). China supplied more than 708 million hogs in 2015, accounting for almost half of global production (Rao and Zhang 2020). A salient feature of China's hog production is its large number of spatially scattered, small-sized hog farms 1 that rely on the intensive use of labour and outdated technologies (Zhang et al 2017).…”

“…However, despite subsidies as high as 80%, uptake of hog insurance has been relatively weak (Liu et al 2020). In 2015, only 25% of farmers were covered by insurance for finishing hogs (Rao and Zhang 2020).…”

“…More recent studies focus on the reasons for the slow development of livestock insurance. The potential causes identified include the availability of alternative risk management strategies (FAO 2007;Chantarat et al 2009), lack of trust in the insurer (Cai et al 2015), liquidity constraints (Takahashi et al 2016;Liu et al 2020), asymmetric information (Jensen et al 2018;Rao and Zhang 2020) and basis risk (Jensen et al 2016(Jensen et al , 2018. Although previous studies examined how farmers' characteristics affect their participation in an insurance programme, little has been done to investigate whether farmers' preferences for livestock insurance are satisfied by its attributes.…”