Moral hazard and adverse selection effects of cost‐of‐production crop insurance: evidence from the Philippines

He, Juan; Zheng, Xiaoyong; Rejesus, Roderick M.; Yorobe, Jose M.

doi:10.1111/1467-8489.12290

Cited by 16 publications

(12 citation statements)

References 22 publications

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“…Household size is expected to influence farmers' adaptation decisions positively because as a proxy for farm labour, it reduces the constraints on adopting labour-intensive adaptation practices (Mignouna et al 2011a;Mignouna et al 2011b;Ndamani and Watanabe 2016). Regarding gender, studies show that male farmers adapt more readily to climate change than their female counterparts because men have more agricultural resource endowments (Deressa et al, 2008;Doss and Morris 2001;He et al 2019) and women's access to agricultural resources and information is often slim due to traditional barriers (Ndiritu et al 2014). Scholars have reported both positive and negative impacts of marital status on adoption in Nigeria (Adesope et al 2012;Elemasho et al 2017).…”

Section: Endogenous Variablesmentioning

confidence: 99%

Climate change adaptation actions by fish farmers: evidence from the Niger Delta Region of Nigeria

Onyeneke¹,

Igberi²,

Aligbe

et al. 2019

Aus J Agri & Res Econ

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This paper examined climate change adaptation strategies in fish farming and the effect of such methods on the profit of fish farmers in the Niger Delta region of Nigeria, Africa’s most populous country. Using cross‐sectional data obtained from 420 fish farmers from the region and applying multivariate probit and instrumental variable regressions, the study found that fish farmers have adopted a broad range of strategies to address climate risk and that these have significantly increased farmers’ profit. Our findings indicated important relationships between certain farm, socio‐economic and institutional characteristics and the adaptation actions. The study provides useful insight into factors that potentially encourage the adoption of livelihood‐enhancing climate risk adaptation strategies by fish farmers in the Niger Delta region and similar contexts.

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Section: Endogenous Variablesmentioning

confidence: 99%

Climate change adaptation actions by fish farmers: evidence from the Niger Delta Region of Nigeria

Onyeneke¹,

Igberi²,

Aligbe

et al. 2019

Aus J Agri & Res Econ

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“…The presence of asymmetric information between the counterparties give rise to moral hazard and adverse selection. These problems have affected the continued sustainability and health of these insurance products (He et al, 2019). This in turn impede the development of agricultural insurance market.…”

Section: Challenges Arise From Traditional Indemnitybased Agriculturamentioning

confidence: 99%

“…Adverse selection happens when technical expertise deficiencies make the insurance providers find it hard and costly to distinguish between lowrisk and high-risk policyholders and hence fail to determine premiums corresponding with each type of risk exposure (Romero and Molina, 2015). As a result, it will negatively affect the profitability of insurers as the payment of indemnities is much greater than premiums collected (He et al, 2019). Romero and Molina further asserted that the consequences of adverse selection will hamper the emergence of insurance market (Romero and Molina, 2015).…”

Section: Adverse Selectionmentioning

confidence: 99%

Application of weather index-based insurance for paddy yield: The case of Malaysia

Wen¹

2019

Int. j. adv. appl. sci.

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Agriculture is primarily vulnerable to vagaries of the weather. The impact of climate change is always intertwined with agricultural production. Therefore, in order to manage these losses, agricultural insurance should be initiated in Malaysia to the farmers to handle the financial risks associated with the impact of weather conditions on the crop yield. This study presents the results of a pilot scale investigation on weather index-based paddy insurance in five selected states in Malaysia. The aim of this study is to determine the appropriateness of this insurance model for each selected paddy cropping zone in Malaysia. Suitable weather indexes were chosen based on the relationship of these indexes and the paddy yield in each zone by employing the method of Ordinary Least Square regression and robust regression. The weather index-based insurance contract is designed based on the natural phenomenon and the time trend had been removed in order to reduce the basis risk. By investigating the relationship, a paddy insurance contract was then designed. However, the results showed that three paddy cropping zones are not suitable to uptake this index insurance as the regression models reported that the vagaries of weather did not cause a significant impact on the paddy yield of these states. This study reveals diversified insurance product design of each zone based on different weather indexes, which suggests that more weather variables should have to be taken into account in order to design a more robust weather-index insurance.

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“…For example, China's COP insurance program only compensates farmers a portion of the costs spent on inputs if yields fall below insured levels (Zhong & Zhu, 2017). Likewise, in the Philippines, farmers are required to submit an input use plan upon COP insurance application, and the indemnity payment is a percentage of the total input costs stated in the plan (He, Rejesus, Zheng, & Yorobe, 2018; He, Zheng, Rejesus, & Yorobe, 2019; Reyes, Mina, Gloria, & Mercado, 2015). The COP insurance products are structured differently as compared to the yield‐ and revenue‐based products in the United States and may hence affect input use differently.…”

Section: Introductionmentioning

confidence: 99%

Input use under cost‐of‐production crop insurance: Theory and evidence

Zheng

Rejesus

et al. 2020

Agricultural Economics

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There have been a number of previous studies that examined the effects of yield-or revenue-based crop insurance products on input use of farmers. However, no study has specifically investigated the input use impacts of a cost-of-production (COP) crop insurance policy, even though this type of crop insurance is the predominant one used in several other countries outside of the United States (such as the Philippines and China). This article aims to theoretically and empirically examine the effect of a COP crop insurance product on farmers' chemical input use. Our theoretical model suggests that the effect of COP insurance on input use can either be positive or negative, with the resulting impact depending on the strengths of (a) the traditional moral hazard effect of insurance (i.e., an input use decreasing effect); versus (b) the marginal incentives to apply more inputs due to input levels being the main determinant for expected indemnity amounts in this type of insurance (i.e., an input use increasing effect). A survey data set from corn farmers in the Philippines is then used to empirically illustrate how a particular COP insurance product influences input use in a real-life context. In this case, we find that COP insurance increases the use of chemical inputs (e.g., fertilizers and total chemical expenditure), implying that the positive marginal incentive to apply more inputs dominates the negative moral hazard effect. tain types of insurance, met the criteria for exemption from WTO disciplines (see Matthews (2018) at http://capreform.eu/recent-trends-in-euwto-domestic-support-notifications/). 2 For example, subsidies to the US federal crop insurance program have been increased over the years to reach high target program participation levels (See Shields (2015) at https://nationalaglawcenter.org/wp-content/ uploads/assets/crs/R43951.pdf).

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Moral hazard and adverse selection effects of cost‐of‐production crop insurance: evidence from the Philippines

Cited by 16 publications

References 22 publications

Climate change adaptation actions by fish farmers: evidence from the Niger Delta Region of Nigeria

Climate change adaptation actions by fish farmers: evidence from the Niger Delta Region of Nigeria

Application of weather index-based insurance for paddy yield: The case of Malaysia

Input use under cost‐of‐production crop insurance: Theory and evidence

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