Crop Insurance and Pesticide Use. A Case Study on Italian Agriculture

Providing better risk management tools for farmers and reducing adverse effects from pesticide use are essential goals of agricultural policy but are potentially interrelated and contradictory. Motivated by important policy implications, this article analyses the relationship between the farmers’ subscriptions to insurance contracts covering crop damages and the amount of pesticide expenses for farming. Using information deriving from the Italian Farm Accountancy Data Network (FADN), we quantify the association between insurance and pesticide use at the intensive and extensive margins, so estimating the effects on pesticide use deriving from the land use decision and the effects on the amount of pesticides per hectare to parity of crops. Our results indicate a positive and significant relationship between crop insurance expenses and pesticide use in the analysed farms. The findings show that the crop insurance's positive marginal incentive to use more input expense of chemicals in production dominates the negative moral hazard effect typically present in the assurance contracts.