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Estimation of Insurance Deductible Demand under Endogenous Premium Rates

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  • Woodard, Joshua

Abstract

Government subsidized insurance is ubiquitous, yet estimation of demand in such markets remains challenging. Premium charged for a given deductible is determined by actuarial construction, thus observed choice-pairs are endogenous leading to biased estimation under standard econometric approaches. A theoretical model and simulation study are developed, and a new identification strategy proposed. An empirical application using Federal Crop Insurance Program--a $100 billion/year program--data reveals that demand is quite elastic after accounting for this endogeneity. Mistreatment of such endogeneity is likely partly responsible for pervasive faulty findings of inelastic insurance demand in related applications. Policy implications are discussed.

Suggested Citation

  • Woodard, Joshua, 2016. "Estimation of Insurance Deductible Demand under Endogenous Premium Rates," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236151, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:236151
    DOI: 10.22004/ag.econ.236151
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    Cited by:

    1. Congressional Budget Office, 2017. "Options to Reduce the Budgetary Costs of the Federal Crop Insurance Program," Reports 53375, Congressional Budget Office.
    2. Lavorato, M. & Braga, M., 2018. "Assessing the effects of premium subsidies on crop insurance demand: An analysis for grain production in Southern Brazil," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276025, International Association of Agricultural Economists.

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    Agribusiness; Agricultural and Food Policy; Agricultural Finance;
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