Testing for adverse selection of crop insurance in northern China
Abstract
Purpose
The purpose of this paper is to examine the efficiency of current subsidized crop insurance products (SCIPs) in Miyun county, in northern China, by testing the existence of adverse selection.
Design/methodology/approach
The authors examine the efficiency of SCIPs from a farmers' point of view by testing the existence of adverse selection using nonparametric tests and logit regression on data from individual interviews in Miyun County. Due to adverse selection, producers with more risk should be more likely to buy crop insurance in pursuit of the benefits from SCIPs.
Findings
However, both methods conclude no existence of adverse selection, which indicates that the programs are inefficient. This may not be surprising based on the issues of concern cited above. The opportunities and challenges of a growing interest in weather index insurance are discussed toward the end of the paper.
Originality/value
This paper weaves together literature on traditional and weather index insurance, along with primary data from a survey, to examine the pros and cons of each type of insurance. Implications for policy makers are to compare the tradeoffs between concerns of the two types of insurance examined here, traditional and weather index insurance. Ultimately, the political goals might best determine which option is most desirable.
Keywords
Citation
Hou, L., Hoag, D.L.K. and Mu, Y. (2011), "Testing for adverse selection of crop insurance in northern China", China Agricultural Economic Review, Vol. 3 No. 4, pp. 462-475. https://doi.org/10.1108/17561371111192329
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited