Willingness to pay for agricultural risk insurance as a strategy to adapt climate change
Tigist Mekonnen Melesse
#2017-028
Agricultural production is subject to high risk associated with
environmental and agro-ecological conditions. Farmers continuously make
decisions to mitigate the various adversities. This study evaluates farm
households’ willingness to pay for agricultural risk insurance
intervention introduced in Ethiopia in 2009. A bidding game approach is
used to elicit willingness-to-pay. We use a unique data collected on
farmers’ willingness to pay for production risk insurance covering 1500
farm households. The result from the first willingness to pay response
model shows that on average, farmers are willing to pay a premium of 55
Ethiopian Birr. By increasing the efficiency of our estimation, a
double-bounded dichotomous choice model is estimated in the follow-up
willingness to pay response question. It indicates that farmers are
willing to pay about 67 Ethiopian Birr to insurance coverage. The use of
modern agricultural technologies such as high-yielding variety and
inorganic fertilizer, low rainfall, large family size, and high rainfall
type are potential indicators that determine farmers’ decision to adopt
financial insurance. We also found farmer’s demand for insurance
increases due to the changing extreme weather events. Therefore, the
study provides information to agricultural policy makers and private
companies to promote agricultural insurance and set the premium and
enrollment unit.
JEL Classification: D22, D81, G22
Keywords: Risk, uncertainty, technologies, insurance, contingent
valuation methods, Ethiopia