The Demand for Specialty-Crop Insurance: Adverse Selection and Moral Hazard



Table 1. Tobit Model Estimates of Insurance Demand Equations: Cost of Production Options

65% Coverage

75% Coverage

85% Coverage

Variable

Estimates2

t-ratio

Estimate

t-ratio

Estimate

t-ratio

Constant1

-0.1425

-1.3920

-0.0163

-0.1090

-0.1110

-1.0660

Contract

0.0822*

2.6710

0.0612

1.3750

0.1049*

3.3240

History

0.0199

0.6760

-0.0463

-1.1210

0.0059

0.2000

Program

-0.0565*

-2.0290

-0.0661*

-1.6620

-0.0610*

-2.1790

Off farm Inc

-9.1275

-0.1240

0.4597

0.0040

1.8007

0.2290

Debt Ratio

-1.5334

-1.4860

-1.2232

-0.7920

-1.4384

-1.3080

Age

0.0389*

2.3950

0.0350

1.4780

0.0552*

3.3250

Education

-0.0126

-0.9190

-0.0272

-1.3600

-0.0262*

-1.8690

Num. Crops

8.5981

0.8830

1.3218

0.9040

1.3700

1.3140

Distance

0.2407

0.9490

-0.1362

-0.6630

-0.1132

-0.7720

Irrigation

-0.0479*

-1.6200

-0.0427

-1.0030

-0.0440

-1.4730

Risk Att.

0.0214*

1.7840

0.0227

1.2870

0.0152

1.2370

Efficiency

-0.0451

-1.3440

-0.0395*

-1.7860

-0.0270*

-1.7730

Yield Risk

-0.3895

-0.4220

0.4681

0.9500

0.4023

1.1480

E[P]

0.2103

0.1730

1.6730

1.0170

4.5461

0.4090

σ

0.0906*

9.0780

0.1363*

9.9060

0.0974*

10.6050

R2

33.8%

22.8%

34.7%

A single asterisk indicates significance at a 5% level. Variable definitions are provided in the text, whiise
the estimated variance. Note that the parameters have been scaled for presentation purposes: Off farm income by 10
debt ratio by 105, number of crops by 1(7, distance by 10l, yield risk by 1(5 , and E[P] by 1(6.

2

The marginal effects of each explanatory vanable on the willingness to pay is given by:
where Φ is the normal distribution function, is the vector of willingness’ to pay

E[yx] / x = Φ ( β 'x / σ )β,


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