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Area Yield Index Insurance or Farm Yield Crop Insurance? Chinese Perspectives on Farmers' Welfare and Government Subsidy Effectiveness
Author(s) -
Ye Tao,
Hu Wuyang,
Barnett Barry J.,
Wang Jiwei,
Gao Yu
Publication year - 2020
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/1477-9552.12326
Subject(s) - subsidy , crop insurance , yield (engineering) , welfare , agriculture , agricultural economics , government (linguistics) , economics , public economics , business , china , index (typography) , actuarial science , geography , linguistics , philosophy , materials science , archaeology , world wide web , computer science , market economy , metallurgy
We evaluate the performance of area yield crop insurance ( AYCI ) and farm yield crop insurance ( FYCI ) using farm‐level yield data from China, focusing on their effects on farmers' welfare, and their cost‐effectiveness in terms of government subsidy. Given a subsidy rate sufficient to generate a politically acceptable participation level, the price advantage of AYCI may no longer offset its higher basis risk, and consequently FYCI may be preferred by farmers. From the government's perspective, AYCI is the cheapest option to maintain reasonable farmer participation in insurance, but is not necessarily the most cost‐effective choice. Our findings suggest that, contrary to an assumption that informs many developing country agricultural insurance programmes, AYCI schemes are not necessarily preferred to FYCI . Decisions on the structure of a national agricultural insurance programme should be based on careful consideration of local conditions.