Farmer Participation, Entry and Exit Decisions in the Italian Crop Insurance Programme

We investigate the demand for crop insurance using individual models of participation, entry and exit decisions

F. G. Santeramo; B. K. Goodwin; F. Adinolfi; F. Capitanio

2016

Scholarcy highlights

  • Over the last several decades, risk management policies in agriculture have been significantly modified
  • In Italy, the Fondo di Solidarietà Nazionale was developed in the 1970s and was intended to compensate farmers who had been affected by natural disasters
  • This policy, which has played a prominent role in Italian agriculture, is mainly regulated by Legislative Decree No 102/2004 which subsidizes insurance contracts
  • We investigate the demand for crop insurance using individual models of participation, entry and exit decisions
  • Shapiro and Brorsen suggest that farmers may become less risk averse as they gain education, with more educated farmers being less likely to adopt risk management strategies such as crop insurance contracts, consistent with the human capital theories developed by Welch and Schultz
  • Under the current Italian insurance program, farmers receive a premium subsidy of up to 80% to insure a farm’s production against losses larger than thirty percent of the historical average level of production
  • We find that entry and exit decision are driven by different factors and that adjustments to changes may reflect asymmetric patterns of adjustment, with increases in key variables implying different adjustments that would be the case for corresponding decreases
  • This interest is substantiated by the significant investment of public funds to support such schemes and the oft-repeated goal of increasing

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