Abstract
Planting fruit trees in ecologically vulnerable areas is an effective approach to achieving the goal of ecological protection and improving farmers’ livelihoods. However, in ecologically vulnerable areas, farmers still face agricultural production risks such as natural disasters, diseases, and pests. In order to help fruit growers avoid these risks and ensure the sustainability of their livelihoods, the Chinese government has launched cost-of-production (COP) insurance in these areas. Although previous studies have shown that the purchase of revenue- or yield-based crop insurance will change insured farmers’ input expense of chemicals in agricultural production, the existing literature lacksa discussion on how COP insurance affects the input expense of chemicals in fruit growing. Here, we address the existing research gap from both theoretical and empirical aspects by conducting surveys in 1051 households of fruit growers in the Shaanxi province of China. Theoretical deduction reveals that the COP insurance on input expenditure of chemicals can have an increasing effect. Using the 2SLS model and empirical analysis, we found that the insured fruit growers spent more on using chemical fertilizers and pesticides compared to non-insured fruit growers. These findings demonstrate that the COP insurance’s positive marginal incentive to apply more input expense of chemicals in production dominates the negative moral hazard effect.
Highlights
In the past two decades, sustainable development and environmental protection have been regarded as the core goals of social development worldwide [1]
The results show that the maximum value of the variance expansion factor (VIF) is
The empirical result indicates that the inputexpense-increasing effect of COP insurance—meaning the marginal incentives to apply more input expense due to input expense being the main determinant for expected indemnity amounts—dominates the input-expense-decreasing effect of COP insurance that comes from the traditional moral hazard effect in yield- or revenue-based crop insurance [2,34]
Summary
In the past two decades, sustainable development and environmental protection have been regarded as the core goals of social development worldwide [1]. In ecologically vulnerable areas of developing countries, farmers’ livelihoods activities are often at the core of the contradiction between economic growth and environmental protection. Ways to improve the living standards of the people in these areas, protect the local ecological environment, and promote the sustainable development of rural areas have always been the concern of government departments and scholars in developing countries. Appropriate policy tools are required to achieve a win-win outcome that promotes both farmers’ income increase and natural ecological protection in ecologically vulnerable areas. In China, as a supporting tool of the ecological protection plan, the government has launched cost-of-production (hereinafter called COP) insurance for fruit growing in ecologically vulnerable areas. The aim of launching COP insurance in those areas is to increase farmers’ abilities to resist the production risks of fruit growing (e.g., natural disasters, diseases, and insect pests), and improve their livelihood sustainability.
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