Estimating farmers’ willingness to pay for crop insurance with application of choice experiment: case study in South Gondar Zone, Ethiopia

Abstract

PurposeThis study aims to estimate farmers’ willingness to pay for crop insurance, utilizing a choice experiment case study in the South Gondar Zone, Ethiopia.Design/methodology/approachPrimary cross-sectional data were collected in 2023 from 240 farm households. The choice experiment method was employed to elicit farmers’ willingness to pay for crop insurance. Five attributes, including monetary cost, were identified for the choice experiment, with two improved scenarios and a status quo presented to respondents. The mixed logit model and extended mixed logit model were used for analysis.FindingsThe econometric model indicated that, with the exception of one attribute, all were positive and statistically significant. Farmers showed a preference for improved scenarios over the status quo, demonstrating a willingness to pay for crop insurance. The extended mixed logit model revealed that factors such as livestock ownership, household head’s sex, family size, income, farming experience, crop risk exposure, and additional occupations significantly influenced farmers’ preferences for crop insurance.Research limitations/implicationsThe study’s sample size was limited to 240 farm households, which is relatively small. More reliable results could be obtained with a larger sample size. Another significant limitation is the study’s failure to account for institutional setups when assessing farmers’ willingness to pay for crop insurance.Practical implicationsAgricultural risk, particularly crop risk, is severe in the study area. The results suggest that farmers have a genuine need for risk mitigation mechanisms, such as crop insurance. The findings reflect farmers’ interest in crop insurance, indicating that responsible entities, whether governmental or private insurance companies, can readily implement crop insurance schemes.Social implicationsThe study has significant social implications, as the society in the study area is highly vulnerable to crop risk, which adversely affects their livelihood. Introducing a crop insurance scheme could enhance the welfare and livelihood of the local population.Originality/valueTo the best of our knowledge, this study is novel in both concept and methodology. Unlike previous studies, which focused on specific crop risks, this study considers multiple crop risks. The findings offer valuable insights for policymakers and other stakeholders involved in crop insurance. Understanding farmers’ preferences for crop insurance is crucial for designing effective crop insurance policies.