Livestock insurance, moral hazard, and farmers’ decisions: a field experiment among hog farms in China

Abstract

Moral hazard is believed to influence farmers’ production decisions and undermine the effectiveness of insurance programmes. In this study, a 2-year field experiment is conducted among hog farms in four townships in China to investigate the effects of a government-subsidised insurance programme on farmers’ decisions and production outcomes. A joint estimation procedure combining propensity score matching with difference-in-difference is deployed to control for selection bias caused by observable and unobservable heterogeneity between treatment and control groups. We find robust evidence that this insurance programme has led to increased hog mortality rates, suggesting the possible presence of hazardous actions. Meanwhile, hog stock levels have remained unaffected by insurance participation, contradicting findings in previous studies. Furthermore, insurance participation is found to increase farmers’ willingness to report animal diseases to governments, thereby facilitating government efforts to prevent and monitor outbreaks of animal disease epidemics.