MALLEE WHEAT FARMERS' DEMAND FOR CROP AND RAINFALL INSURANCE

Abstract

Producers' demand for a crop insurance program with indemnities based on their actual yields and a rainfall insurance program with indemnities based on area rainfall is analysed. Actuarial costs of these hypothetical programs are estimated. Tobit procedures are used to analyse factors influencing the amount which farmers would be willing to pay for the alternative insurance programs. Factors related to the absolute size of risk and capacity to bear risk, as well as personal characteristics and risk attitudes of producers, have effects on the demand for insurance as hypothesised. Problems of adverse selection are associated with the area yield‐based program, while both crop and rainfall insurance programs may involve some moral hazard. Producer participation in either program would be limited. 1988 The Australian Agricultural Economics Society