Abstract
The productivity of the agricultural sector depends on natural resources, and farmers are vulnerable to substantial weather risks globally. For many years, different insurance products have been promoted in China to manage the negative impact and risk associated with unpredictable natural events. Generally, different insurance products correspond to the various premium levels, and farmers are unaware of the insurance policies and premium calculations. This study focuses on farmers’ preferences toward the insurance of corn crop, one of China’s largest grain crop productions. This study uses Heckman’s two‐stage model to focus on the farmers’ willingness to pay for multiple weather‐based insurances, who suffered severe disasters. The contingent valuation method was used to collect the data about farmers’ willingness to pay and preferences from 252 households across three cities of Inner Mongolia, China. The result of empirical estimation indicates that farmers with less experience and high income tend to choose “60% of full‐cost insurance product.” Farmers with a lack of specialization and lower diversified planting tend to choose “full‐cost insurance product.” In contrast, farmers with higher education prefer “output value insurance product.” The empirical result indicates that the promotion of various agricultural insurance could be a valuable strategy to improve protection levels and manage the risk adjustment input in the agricultural sector. Therefore, this study provides insights into risk reduction design that suggests adopting and encouraging different agricultural insurance products.
Highlights
Theoretical AnalysisIn the early stages of agricultural insurance development in various countries globally, the protection level was relatively low, affecting farmers’ WTP [13–15]
Academic Editor: Polinpapilinho Katina e productivity of the agricultural sector depends on natural resources, and farmers are vulnerable to substantial weather risks globally
Different insurance products correspond to the various premium levels, and farmers are unaware of the insurance policies and premium calculations. is study focuses on farmers’ preferences toward the insurance of corn crop, one of China’s largest grain crop productions. is study uses Heckman’s two-stage model to focus on the farmers’ willingness to pay for multiple weather-based insurances, who suffered severe disasters. e contingent valuation method was used to collect the data about farmers’ willingness to pay and preferences from 252 households across three cities of Inner Mongolia, China. e result of empirical estimation indicates that farmers with less experience and high income tend to choose “60% of full-cost insurance product.”
Summary
In the early stages of agricultural insurance development in various countries globally, the protection level was relatively low, affecting farmers’ WTP [13–15]. China is facing the same problem of a low protection level of agricultural insurance. Previous studies have pointed out that increasing protection levels can effectively increase farmers’ WTP [16–18]. While the optimal insurance theory assumes that farmers are risk averters and expect utility maximization, when a protection level is equal to their risk losses, farmers can maximize utility under actuarial fairs. It indicates that when the protection level is close to the size of risk loss, it is more beneficial to increase farmers’ WTP. Erefore, increasing multiple protection levels can increase their WTP [16, 17]
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