An Empirical Analysis on the Production and Price Effect by Agricultural Disaster Insurance

Korean Abstract: . . , . . 2 . 1 , 80,000 . ⋅ 1 2 10,000 2.3% . . . , .English Abstract: This study empirically analyzes changes in production patterns of farmers by agricultural disaster insurance. The aim of this project is to achieve stability of farm management by paying insurance in case of a natural disaster. However, it causes farmers to change production patterns in the direction of increasing production, and leads the crop price to drop. This can be explained by producers’ risk reduction through the disaster insurance. The empirical analysis is based on Ⅳ approach with using two stage least squares method. The first stage estimates by difference-in-differences methodology indicate that the production of insurable crops increases more about 80,000ton on average than that of non-insurable crops. In addition, to solve the endogeneity problem caused by general supply and demand model, I use the first stage estimates and find that the price index of the crops drops about 2.3% according to the production increase by 10,000 ton. The credibility of these results is also attained by various robustness checks. These findings suggest that it is necessary for government to analyze the whole economy which consists of producer and consumer welfare when it determines the policy. Besides, it implies that it is essential to develop a new market to cope with the unintended effect.