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Area Yield Index Insurance or Farm Yield Crop Insurance? Chinese Perspectives on Farmers' Welfare and Government Subsidy Effectiveness

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Listed:
  • Tao Ye
  • Wuyang Hu
  • Barry J. Barnett
  • Jiwei Wang
  • Yu Gao

Abstract

We evaluate the performance of area yield crop insurance (AYCI) and farm yield crop insurance (FYCI) using farm‐level yield data from China, focusing on their effects on farmers' welfare, and their cost‐effectiveness in terms of government subsidy. Given a subsidy rate sufficient to generate a politically acceptable participation level, the price advantage of AYCI may no longer offset its higher basis risk, and consequently FYCI may be preferred by farmers. From the government's perspective, AYCI is the cheapest option to maintain reasonable farmer participation in insurance, but is not necessarily the most cost‐effective choice. Our findings suggest that, contrary to an assumption that informs many developing country agricultural insurance programmes, AYCI schemes are not necessarily preferred to FYCI. Decisions on the structure of a national agricultural insurance programme should be based on careful consideration of local conditions.

Suggested Citation

  • Tao Ye & Wuyang Hu & Barry J. Barnett & Jiwei Wang & Yu Gao, 2020. "Area Yield Index Insurance or Farm Yield Crop Insurance? Chinese Perspectives on Farmers' Welfare and Government Subsidy Effectiveness," Journal of Agricultural Economics, Wiley Blackwell, vol. 71(1), pages 144-164, February.
    • Handle: RePEc:bla:jageco:v:71:y:2020:i:1:p:144-164
    DOI: 10.1111/1477-9552.12326
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    Cited by:

    1. Mengmeng Qiang & Manhong Shen & Guanjun Xia, 2023. "The effectiveness of weather index insurance in managing mariculture production risk," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 67(2), pages 245-262, April.
    2. Acharya H, Rajesh, 2024. "Adoption of Crop Insurance by Smallholder Farmers: Farm-Level Evidence from India," Research on World Agricultural Economy, Nan Yang Academy of Sciences Pte Ltd (NASS), vol. 5(4), October.
    3. Tang, Lin & Luo, Xiaofeng, 2021. "Can agricultural insurance encourage farmers to apply biological pesticides? Evidence from rural China," Food Policy, Elsevier, vol. 105(C).
    4. Baoling Zou & Zanjie Ren & Ashok K. Mishra & Stefan Hirsch, 2022. "The role of agricultural insurance in boosting agricultural output: An aggregate analysis from Chinese provinces," Agribusiness, John Wiley & Sons, Ltd., vol. 38(4), pages 923-945, October.
    5. Richard KOENIG & Marielle BRUNETTE, 2023. "Subjective barriers and determinants to crop insurance adoption," Working Papers of BETA 2023-25, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Saisai Wen & Qin Xiao & Junjie Li & Jianping Li, 2023. "The Impact of Agricultural Insurance on Urban–Rural Income Gap: Empirical Evidence from China," Agriculture, MDPI, vol. 13(10), pages 1-18, October.
    7. Matthieu Stigler & David Lobell, 2020. "On the benefits of index insurance in US agriculture: a large-scale analysis using satellite data," Papers 2011.12544, arXiv.org, revised Nov 2021.

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