Rank-dependent preferences, social network and crop insurance uptake: field experimental evidence from rural China

Abstract

Purpose

Agricultural insurance has become increasingly important to farmers' livelihood and production in rural China. Yet despite the enormous governmental subsidizing efforts, the insurance participation rate remains below expectations. This study revisits the linkage between farmers' risk attitudes and crop insurance utilization by providing a cross-cutting perspective such that the role of risk aversion is re-scrutinized in Chinese “kindred” village economies.

Design/methodology/approach

The authors administrated a lottery-based multiple price list (MPL) experiment by recruiting rice farmers from 12 villages in Sichuan province in southwestern China. Using the experimental data, farmers' risk attitudes are assessed and coefficients of risk aversion are estimated within the rank-dependent expected utility (RDEU) framework by maximizing a structured likelihood function.

Findings

This study provides substantiating evidence that rice farmers in southwestern China exhibit relatively high risk aversion. The authors also provide suggestive evidence of the positive relationship between farmers' risk aversion and crop insurance utilization. In addition, findings reveal that kinship network has a negative effect on crop insurance utilization, such that farmers who are connected in higher degree of kinship network have lower likelihood of crop insurance utilization, which suggests that kinship network may be substitute for formal crop insurance. Result also demonstrates that the incentive effect of risk aversion on farmers' crop insurance participation manifests differently depending on the degree of kinship network in rural China.

Originality/value

This study provides a cross-cutting perspective by scrutinizing the effects of farmers' risk attitudes and kinship network on crop insurance participation in rural China, which has received relatively little attention in the literature. Conclusions on the effects of risk aversion on crop insurance participation have been mixed in previous studies. In addition, to the best of our knowledge, little has been done to explicitly examine the influence of social proximity and networks on farmers' insurance uptake. This study attempts to fill both gaps. This study provides new insights which might shed lights on the understanding of farmers' crop insurance participation in rural China.

Citation

Zhang, R., Fan, D., Lai, G., Wu, J. and Li, J. (2021), "Rank-dependent preferences, social network and crop insurance uptake: field experimental evidence from rural China", Agricultural Finance Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/AFR-03-2020-0035

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