Modelling the switch from hail insurance to antihail nets

We analyse the impact of the antihail net promotion on the actuarial soundness of the hail insurance market. Specifically, we present a simple model showing that, in the presence of an imperfect insurance market, incentives for antihail nets could cause low‐risk farmers to exit the insurance market...

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Bibliographic Details
Published in:The Australian journal of agricultural and resource economics 2023-01, Vol.67 (1), p.118-136
Main Authors: Rogna, Marco, Schamel, Günter, Weissensteiner, Alex
Format: Article
Language:English
Subjects:
actuarial soundness
agricultural insurance
antihail nets
Empirical analysis
Farmers
Hail
Impact analysis
Incentives
Insurance
Longitudinal studies
Nets
panel data
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Summary:We analyse the impact of the antihail net promotion on the actuarial soundness of the hail insurance market. Specifically, we present a simple model showing that, in the presence of an imperfect insurance market, incentives for antihail nets could cause low‐risk farmers to exit the insurance market more likely than high‐risk ones. This induces a typical adverse selection problem. The theoretical model predictions are corroborated by an empirical investigation. Based on a fixed‐effect conditional logit regression, we show that a higher per‐hectare output value and a location strongly affected by hail both increase the chance that a plot is hedged through antihail nets.
ISSN:1364-985X
1467-8489
DOI:10.1111/1467-8489.12499