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Crowding out agricultural insurance and the subsidy system in Italy: empirical evidence of the charity hazard phenomenon

Pier Paolo Miglietta (Universita del Salento, Lecce, Italy)
Donatella Porrini (Universita del Salento, Lecce, Italy)
Giulio Fusco (Universita del Salento, Lecce, Italy)
Fabian Capitanio (Università degli Studi di Napoli Federico II, Napoli, Italy)

Agricultural Finance Review

ISSN: 0002-1466

Article publication date: 28 August 2020

Issue publication date: 15 March 2021

298

Abstract

Purpose

The term “charity hazard” refers to the issue of the crowding out of insurance by co-existing relief programs in the context of different institutional governmental disaster schemes. In this context, the aim of this paper is to verify if the charity hazard phenomenon exists in the Italian agricultural insurance scheme.

Design/methodology/approach

Annual data regarding crop insurance, subsidies and farm structure were extracted from ISMEA, ISTAT and FADN databases. A SYS-GMM dynamic panel model was estimated, considering the 2010–2017 time period and the Italian Regions as units of the analysis.

Findings

The empirical results highlight a negative relation between crop subsidies and the farmers' policies and total premium paid. The disincentive and crowd-out effects of public aid and subsidies on the choice of whether or not to take out an agricultural insurance policy ends up being one of the key factors for the low level of penetration of the agricultural insurance in Italy.

Practical implications

Since the diffusion of agricultural insurance can contribute to the general objective of sustainability and resilience, the implementation of alternative solutions to subsidies could be needed (e.g. the introduction of mandatory insurance against adversities or financial support for a geographically specific insurance tool).

Originality/value

Investigating empirically the determinants of the agricultural insurance policy diffusion among the Italian Regions, this study ensures an original contribution to the scientific progress in the field, demonstrating the existence of charity hazard caused by the public subsidies provision.

Keywords

Citation

Miglietta, P.P., Porrini, D., Fusco, G. and Capitanio, F. (2021), "Crowding out agricultural insurance and the subsidy system in Italy: empirical evidence of the charity hazard phenomenon", Agricultural Finance Review, Vol. 81 No. 2, pp. 237-249. https://doi.org/10.1108/AFR-04-2020-0061

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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