geographic and crop diversification, do not affect the willingness to pay, growers who irrigate do
place a lower value on the ability to insure yields. Further, growers with a history of program
participation and with a higher debt-to-assets ratio are willing to pay less for insurance. In the
former case, this result supports the contention by some (Calvin and Just) that growers become
dependent upon government support, so see little need for private insurance. In the latter case,
growers with more debt may be inherently risk loving, or may have less resources to spend on
insurance. In summary, including a measure of intrinsic managerial ability in model of insurance
demand causes variables that have previously been shown to positively effect the demand for
insurance to become insignificant, namely the expected price of output and the historical
variability of farm yields (Coble, et al.).
Conclusions
Continual low participation rates in agricultural crop insurance are typically blamed on
moral hazard and adverse selection problems. Existing empirical measures of moral hazard and
adverse selection in crop insurance consider lower yields by insured producers, or large deviations
between expected and actual yields as evidence of their existence. This paper shows that
producers' technical efficiency is an important determinant of their willingness to buy crop
insurance. Specifically, a more inefficient producer is likely to have a higher willingness-to-pay
for insurance for two reasons: first, a higher level of inefficiency causes the variance of output to
rise, ceteris paribus, and second, a more inefficient grower is likely to find it more costly to reduce
risk through his or her own behavior. Where markets for insurance either do not exist or are not
widely used, a contingent valuation approach is required to examine the effect of inefficiency on
the willingness to pay for insurance.
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