Prevention of farmers’ moral hazard in safe farming in China: by incentives or constraints?

Abstract

Purpose – The purpose of this paper is to understand farmers’ moral hazard in safe farming in China and quantify the degree to which farmers’ moral hazard is prevented by incentive or constraint means or their combinations. Design/methodology/approach – The logit model is used to analyze farmers’ moral hazard in safe farming and the effects of determinants by applying survey data of 560 vegetable and fruit farmers in China. Findings – The result reveals that farmers’ moral hazard in safe farming is prevented by a combination of incentives and constraints. Among incentive factors, profits from safe agro-products are verified to affect farmers’ moral hazard negatively, whereas the effect of safe certification subsidy is not clear. In constraint factors, production environmental supervision (PESUPV) and agricultural input supervision (AISUPV) have significant effects in reducing farmers’ moral hazard, whereas the effects of production process supervision and market access supervision are not clear. Further, the incentives from higher profits of safe agro-products play a greater role in the prevention of farmers’ moral hazard than the constraints from PESUPV and AISUPV. The results indicate that farmers’ moral hazard in safe farming is more likely to be prevented by incentives compared with constraints. Research limitations/implications – The study has some limitations that should be taken into account in future research. First, food safety incidents happen frequently in China, which caused widespread social concern. These affairs may spark a rethink for farmers about how to produce safe agro-products. From this prospective, farmers’ moral hazard in safe farming may be prevented by their social responsibility. However, the survey did not show it. This may be related to the beginning stage of safe farming in China. With the development of safe farming, the effect of social responsibility on the prevention of farmers’ moral hazard would constitute an interesting extension of the work. Second, the study focusses on farmers’ production of safe vegetables and fruits in three areas of China. Covering more activities and areas is likely to commit fruitful results. Originality/value – Based on the theoretical analysis of farmers’ moral hazard in safe farming through using a principal-agent model, the paper proposes hypotheses of incentives and constraints affecting farmers’ moral hazard in safe farming and verifies them through logit model with the survey data from 15 counties (or cities) in Jiangsu, Jiangxi and Sichuan Provinces of China. The result provides some evidences that farmers’ moral hazard in safe farming is simultaneously affected by a combination of incentives and constraints and may be taken as proofs for China's policy-making and focusses implementation in preventing farmers’ moral hazard in safe farming.