Risk Management Effects of Insurance Purchase and Organization Participation: Which Is More Effective?

Abstract

Insurance purchase and organization participation in risk management is of great practical significance for stabilizing agricultural production and household income. The aims of this study were to analyze farm households’ choices of insurance purchase and organization participation, and their effects on crop revenue and its higher-order moments using the multinomial switching endogenous regression (MESR) model. The results showed that the adoption of insurance and organization was significantly affected by household head characteristics, farm household characteristics, and cropland attributes. Insurance purchase, organization participation, and their joint adoption contributed to the increase in crop revenue and decrease in crop revenue variance, and the benefits were larger when adopting two risk management tools in combination. When skewness was taken into account in risk management analysis, insurance purchase, organization participation, and their joint adoption resulted in a reduction in the probability of crop failure, of which, participating in organizations was the most effective. Efforts should be put forth to improve the functioning and effectiveness of agricultural insurance and organization to promote the adoption of risk management tools.