How does full-cost insurance for wheat affect pesticide use? From the perspective of the differentiation of farmers' production scale

Abstract

Theoretically, agricultural insurance influences farmers' use of pesticides by changing the expected income of agricultural production. Full-cost insurance, with high guarantee and high compensation characteristics, may significantly affect farmers' pesticide use. First, this paper constructs a production function to characterize and compare the marginal incomes of insured and uninsured farmers under risk uncertainty and analyses how insured farmers can increase marginal income by increasing or reducing factor inputs. Considering scale differentiation, it discusses pesticide use strategies different types of farmers may adopt to maximize household utility. Second, using survey data of the pilot counties of full-cost insurance for wheat in Henan Province, China, the simultaneous equation model is used for empirical testing. The results reveal the following: (i) Farmers' insurance participation and pesticide application behaviour are not mutually independent. (ii) For the whole sample, full-cost insurance for wheat has a significant pesticide reduction effect. (iii) However, considering scale differentiation, pesticide application decreases significantly among insured ordinary farmers but does not change significantly among insured large-scale farmers. Third, policy measures are proposed to activate the green development function of agricultural insurance.