IDEAS home Printed from https://ideas.repec.org/a/sae/mareco/v10y2016i2p198-224.html
   My bibliography  Save this article

Demand for Price Insurance among Farmers in India: A Choice Experiment-based Approach

Author

Listed:
  • Thiagu Ranganathan

    (Thiagu Ranganathan is at the Agricultural Economics Research Unit, Institute of Economic Growth, New Delhi, India, emails: thiagu.ranganathan@gmail.com, thiagu.r@iegindia.org)

  • Sarthak Gaurav
  • Ashish Singh

Abstract

Using choice experiments, we estimate the willingness to pay for price insurance among cotton and paddy farmers in the Indian state of Gujarat. We also identify the interactions between the demand for price insurance and existing informal and formal risk management mechanisms. Our results indicate that cotton farmers value price insurance more than paddy farmers. Also, most of the existing informal risk management strategies seem to have a positive effect on the demand for price insurance, suggesting potential complementarities. Important policy implications on the design and bundling of innovative financial products follow from our findings. JEL Classification: D81, D01, G13

Suggested Citation

  • Thiagu Ranganathan & Sarthak Gaurav & Ashish Singh, 2016. "Demand for Price Insurance among Farmers in India: A Choice Experiment-based Approach," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 10(2), pages 198-224, May.
    • Handle: RePEc:sae:mareco:v:10:y:2016:i:2:p:198-224
    DOI: 10.1177/0973801015625266
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0973801015625266
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0973801015625266?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dercon, Stefan, 1996. "Risk, Crop Choice, and Savings: Evidence from Tanzania," Economic Development and Cultural Change, University of Chicago Press, vol. 44(3), pages 485-513, April.
    2. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    3. Barrett, Christopher B., 1996. "On price risk and the inverse farm size-productivity relationship," Journal of Development Economics, Elsevier, vol. 51(2), pages 193-215, December.
    4. Sarris, Alexander, 2002. "The demand for commodity insurance by developing country agricultural producers - theory and an application to cocoa in Ghana," Policy Research Working Paper Series 2887, The World Bank.
    5. Ronald I. McKinnon, 1967. "Futures Markets, Buffer Stocks, and Income Stability for Primary Producers," Journal of Political Economy, University of Chicago Press, vol. 75(6), pages 844-844.
    6. Ruth Vargas Hill, 2010. "Liberalisation and Producer Price Risk: Examining Subjective Expectations in the Ugandan Coffee Market," Journal of African Economies, Centre for the Study of African Economies, vol. 19(4), pages 433-458, August.
    7. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
    8. Olivier Mahul & Brian D. Wright, 2003. "Designing Optimal Crop Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 580-589.
    9. Birol, Ekin & Villalba, Eric Rayn & Smale, Melinda, 2009. "Farmer preferences for milpa diversity and genetically modified maize in Mexico: a latent class approach," Environment and Development Economics, Cambridge University Press, vol. 14(4), pages 521-540, August.
    10. F Alpizar & F Carlsson & P Martinsson, 2003. "Using Choice Experiments for Non-Market Valuation," Economic Issues Journal Articles, Economic Issues, vol. 8(1), pages 83-110, March.
    11. Hess, Stephane & Hensher, David A. & Daly, Andrew, 2012. "Not bored yet – Revisiting respondent fatigue in stated choice experiments," Transportation Research Part A: Policy and Practice, Elsevier, vol. 46(3), pages 626-644.
    12. Israel Finkelshtain & James A. Chalfant, 1991. "Marketed Surplus under Risk: Do Peasants Agree with Sandmo?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 557-567.
    13. Harvey Lapan & Giancarlo Moschini, 1994. "Futures Hedging Under Price, Basis, and Production Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 465-477.
    14. Olivier Mahul & Brian Davern Wright, 2003. "Designing optimal crop revenue insurance," Post-Print hal-01954721, HAL.
    15. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74(2), pages 132-132.
    16. Kenneth E. Train, 1998. "Recreation Demand Models with Taste Differences over People," Land Economics, University of Wisconsin Press, vol. 74(2), pages 230-239.
    17. Jerry R. Skees & Panos Varangis & Donald F. Larson & Paul Siegel, 2002. "Can Financial Markets be Tapped to Help Poor People Cope with Weather Risks?," WIDER Working Paper Series DP2002-23, World Institute for Development Economic Research (UNU-WIDER).
    18. Ruth Vargas Hill, 2006. "Coffee Price Risk in the Market: Exporter, Trader and Producer Data from Uganda," Economics Series Working Papers GPRG-WPS-048, University of Oxford, Department of Economics.
    19. D.Rajasekhar & Gagan & B.S, 2004. "Credit Constraints and Distress Sales in Rural India: An Econometric Analysis," Econometric Society 2004 Far Eastern Meetings 410, Econometric Society.
    20. Hope, R.A., 2006. "Evaluating water policy scenarios against the priorities of the rural poor," World Development, Elsevier, vol. 34(1), pages 167-179, January.
    21. David A. Hensher & John M. Rose, 2012. "The Influence of Alternative Acceptability, Attribute Thresholds and Choice Response Certainty on Automobile Purchase Preferences," Journal of Transport Economics and Policy, University of Bath, vol. 46(3), pages 451-468, September.
    22. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    23. Takeshi Sakurai & Thomas Reardon, 1997. "Potential Demand for Drought Insurance in Burkina Faso and Its Determinants," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(4), pages 1193-1207.
    24. Jonathan Morduch, 1999. "The Microfinance Promise," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1569-1614, December.
    25. Simmons, Phil, 2002. "Why do farmers have so little interest in futures markets?," Agricultural Economics, Blackwell, vol. 27(1), pages 1-6, May.
    26. Harold Alderman & Christina H. Paxson, 1994. "Do the Poor Insure? A Synthesis of the Literature on Risk and Consumption in Developing Countries," International Economic Association Series, in: Edmar L. Bacha (ed.), Economics in a Changing World, chapter 3, pages 48-78, Palgrave Macmillan.
    27. Dehn, Jan, 2000. "The effects on growth of commodity price uncertainty and shocks," Policy Research Working Paper Series 2455, The World Bank.
    28. Bienabe, Estelle & Hearne, Robert R., 2006. "Public preferences for biodiversity conservation and scenic beauty within a framework of environmental services payments," Forest Policy and Economics, Elsevier, vol. 9(4), pages 335-348, December.
    29. Dan Rigby & Francisco Alcon & Michael Burton, 2010. "Supply uncertainty and the economic value of irrigation water," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 37(1), pages 97-117, March.
    30. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
    31. Rolfo, Jacques, 1980. "Optimal Hedging under Price and Quantity Uncertainty: The Case of a Cocoa Producer," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 100-116, February.
    32. Peter Boxall & Wiktor Adamowicz, 2002. "Understanding Heterogeneous Preferences in Random Utility Models: A Latent Class Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(4), pages 421-446, December.
    33. Marc F. Bellemare & Christopher B. Barrett & David R. Just, 2013. "The Welfare Impacts of Commodity Price Volatility: Evidence from Rural Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(4), pages 877-899.
    34. Ernst Berg & Bernhard Schmitz, 2008. "Weather‐based instruments in the context of whole‐farm risk management," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 68(1), pages 119-133, May.
    35. Ruth Vargas Hill, 2009. "Using Stated Preferences and Beliefs to Identify the Impact of Risk on Poor Households," Journal of Development Studies, Taylor & Francis Journals, vol. 45(2), pages 151-171.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Boyd, Chris M. & Bellemare, Marc F., 2022. "Why not insure prices? Experimental evidence from Peru," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 580-631.
    2. Qingyin Cai & Yulian Ding & Calum Tuvey & Yuehua Zhang, 2021. "The influence of past experience on farmers’ preferences for hog insurance products: a natural experiment and choice experiment in China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(3), pages 399-421, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Thiagu Ranganathan & Sarthak Gaurav & Ashish Singh, 2014. "Using choice experiments, we estimate the willingness to pay for price insurance among cotton and paddy farmers in the Indian state of Gujarat. We also identify the interactions between the demand for," IEG Working Papers 340, Institute of Economic Growth.
    2. Thiagu Ranganathan & Usha Ananthakumar, 2017. "Hedging in Presence of Crop Yield, Crop Revenue and Rainfall Insurance," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(1), pages 151-171, March.
    3. Hurley, Terrance M., 2010. "A review of agricultural production risk in the developing world," Working Papers 188476, HarvestChoice.
    4. Ekin Birol & Sukanya Das, 2010. "The Value of Improved Public Services : An Application of the Choice Experiment Method to Estimate the Value of Improved Wastewater Treatment Infrastructure in India," Development Economics Working Papers 23062, East Asian Bureau of Economic Research.
    5. Zant, Wouter, 2008. "Hot Stuff: Index Insurance for Indian Smallholder Pepper Growers," World Development, Elsevier, vol. 36(9), pages 1585-1606, September.
    6. Boyd, Chris M. & Bellemare, Marc F., 2022. "Why not insure prices? Experimental evidence from Peru," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 580-631.
    7. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
    8. Hill, Ruth Vargas & Viceisza, Angelino, 2010. "An experiment on the impact of weather shocks and insurance on risky investment," IFPRI discussion papers 974, International Food Policy Research Institute (IFPRI).
    9. Renata Baborska & Emilio Hernandez & Emiliano Magrini & Cristian Morales-Opazo, 2020. "The impact of financial inclusion on rural food security experience: A perspective from low-and middle-income countries," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 10(2), pages 1-18.
    10. Barrett, Christopher B. & Brown, Douglas R., 2002. "Agriculture And Rural Development: Lessons For Christian Groups Combating Persistent Poverty," Working Papers 14738, Cornell University, Department of Applied Economics and Management.
    11. Emiliano Magrini & Pierluigi Montalbano, 2012. "Trade openness and vulnerability to poverty: Vietnam in the long-run (1992-2008)," Working Paper Series 3512, Department of Economics, University of Sussex Business School.
    12. Stine Broch & Suzanne Vedel, 2012. "Using Choice Experiments to Investigate the Policy Relevance of Heterogeneity in Farmer Agri-Environmental Contract Preferences," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(4), pages 561-581, April.
    13. McBride, Linden, 2014. "Exploring food commodity price risk preferences among Tanzanian households," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 172437, Agricultural and Applied Economics Association.
    14. Kikulwe, Enoch M. & Birol, Ekin & Wesseler, Justus & Falck-Zepeda, Jose Benjamin, 2013. "Benefits, costs, and consumer perceptions of the potential introduction of a fungus-resistant banana in Uganda and policy implications," IFPRI book chapters, in: Falck-Zepeda, Jose Benjamin & Gruère, Guillaume P. & Sithole-Niang, Idah (ed.), Genetically modified crops in Africa: Economic and policy lessons from countries south of the Sahara, chapter 4, pages 99-141, International Food Policy Research Institute (IFPRI).
    15. Vasco Molini & Michiel Keyzer & Bart van den Boom & Wouter Zant & Nicholas Nsowah-Nuamah, 2010. "Safety Nets and Index-Based Insurance: Historical Assessment and Semiparametric Simulation for Northern Ghana," Economic Development and Cultural Change, University of Chicago Press, vol. 58(4), pages 671-712, July.
    16. Saenger, Christoph & Torero, Maximo & Qaim, Matin, 2016. "Impact of third-party enforcement of contracts in agricultural markets—A field experiment in Vietnam," IFPRI book chapters, in: Devaux, André & Torero, Maximo & Donovan, Jason & Horton, Douglas E. (ed.), Innovation for inclusive value-chain development: Successes and challenges, chapter 11, pages 343-374, International Food Policy Research Institute (IFPRI).
    17. Yu Na Lee, 2021. "Does Aversion to Price Risk Drive Migration? Evidence from Rural Ethiopia," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1268-1293, August.
    18. Stefan Dercon, 2002. "Income Risk, Coping Strategies, and Safety Nets," The World Bank Research Observer, World Bank, vol. 17(2), pages 141-166, September.
    19. Lee, Yu Na & Bellemare, Marc F. & Just, David R., 2018. "Production Decision Making under Price Ambiguity: An Experimental Evidence," 2018 Annual Meeting, August 5-7, Washington, D.C. 274475, Agricultural and Applied Economics Association.
    20. Ruth Hill & Angelino Viceisza, 2012. "A field experiment on the impact of weather shocks and insurance on risky investment," Experimental Economics, Springer;Economic Science Association, vol. 15(2), pages 341-371, June.

    More about this item

    Keywords

    Willingness to Pay; Price Insurance; Choice Experiments; India;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:mareco:v:10:y:2016:i:2:p:198-224. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.ncaer.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.