Thomas O. Knight

Modeling Farm-Level Crop Insurance Demand with Panel Data

A random-effects, binomial probit model is applied to data for a panel of Kansas wheat farms to examine Multiple Peril Crop Insurance demand. A theoretical model is developed which suggests inclusion of the moments of both market return and the return to insurance. Empirical results indicate that the first and second moments of both market return and the returns to insurance are significant. The price elasticity of demand is estimated to be −0.65. Preseason weather variables when included in the models were not found to be significant, failing to support the hypothesis of intertemporal adverse selection. Copyright 1996, Oxford University Press.

An Expected-Indemnity Approach to the Measurement of Moral Hazard in Crop Insurance

A definition of moral hazard in multiple peril crop insurance is proposed that focuses on expected indemnities rather than input use. Five years of production and insurance data for a panel of Kansas wheat farms is used to empirically test for this type of moral hazard. Results suggest that moral hazard affects multiple peril crop insurance indemnities in poor production years but that no significant moral hazard occurs in years when growing conditions are favorable. Copyright 1997, Oxford University Press.

Survey of U.S. Multiple Peril Crop Insurance Literature Since 1980

Since 1980, the Multiple Peril Crop Insurance (MPCI) program has occupied a prominant role in U.S. farm policy. MPCI coverage offerings have been greatly expanded to try to effectively substitute for other forms of federal crop disaster assistance. In this paper, we survey a substantial body of agricultural economics literature that has examined issues relating to the MPCI program. We give an assessment of research findings along with suggested directions for future research.

Factors Affecting Farmers' Utilization of Agricultural Risk Management Tools: The Case of Crop Insurance, Forward Contracting, and Spreading Sales

Factors affecting the adoption of crop insurance, forward contracting, and spreading sales are analyzed using multivariate and multinomial probit approaches that account for simultaneous adoption and/or correlation among the three risk management adoption decisions. Our empirical results suggest that the decision to adopt crop insurance, forward contracting, and/or spreading sales are correlated. Richer insights can be drawn from our multivariate and multinomial probit analysis than from separate, single-equation probit estimation that assumes independence of adoption decisions. Some factors significantly affecting the adoption of the risk management tools analyzed are proportion of owned acres, off-farm income, education, age, and level of business risks.

Analysis of Beef Producers' Risk Management Perceptions and Desire for Further Risk Management Education

Beef cattle producers were surveyed in Texas and Nebraska to investigate perceptions of sources of risk, the effectiveness of risk management strategies, and interest in further risk management education, particularly production risk, using probit analysis. Important decision variables identified are age, prior use of risk management tools, previous attendances of risk management education, and risk aversion. Severe drought and cattle price variability are identified as primary risk factors with potential to affect farm income. Extremely cold weather and disease are of less importance. Understocking pasture and storing hay are perceived most effective as risk management options. Copyright 2003, Oxford University Press.

Crop Revenue and Yield Insurance Demand: A Subjective Probability Approach

A multinomial logit is utilized to model the choice of whether to purchase yield or revenue insurance using subjectively elicited survey data. Our results indicate that the demand for crop insurance is inelastic (-0.40), consistent with most earlier yield elasticity estimates, but the elasticity for choices between yield and revenue insurance is found to be relatively more elastic (-0.88).

Evolution of Agricultural Land Leasing Models: A Survey of the Literature

Issues relating to agricultural tenancy have been viewed as important economic questions since the early writings of Smith and Mill. At the close of the twentieth century, interest in these issues remains strong. In developing countries with agrarian economies, this interest is stimulated by the perceived importance of land lease arrangements in either fostering or impeding economic development. In the United States, where the proportion of farmland operated under lease arrangements has increased from 35% in 1950 to 43% in 1992 (USDA 1992), concern focuses on efficiency of resource use and issues such as effects of absentee landownership and tenant farming on the adoption of soil-conserving production practices.

U.S. Agricultural Producer Perceptions of Climate Change

This study examines U.S. crop producers’ perceptions of climate change, its effects on crop agriculture, and likely ways farmers would adapt to weather extremes. Based on a survey of crop producers in four states, we find that a significant proportion of farmers do not perceive that climate change has been scientifically proven and do not believe that it will adversely affect average crop yields and yield variability. Farmers are likely to diversify crops, buy crop insurance, modify lease arrangements, and exit farming in response to extreme weather caused by climate change.

Crop Insurance as a Tool for Price and Yield Risk Management

Agricultural production uncertainty due to events such as drought, frost, insect infestation, and disease is widely recognized. Concern about the effects of this uncertainty on the financial stability of farm firms has generated long-standing interest in providing risk management instruments to protect producers from such production risks. In the United States, crop insurance stands as the most prominent risk-sharing mechanism for agricultural yield risk, while price risk protection has traditionally been afforded through forward pricing instruments such as futures contracts and through price-oriented government programs such as marketing loan programs and deficiency payments. Recent introduction of crop revenue insurance has, however, blurred the separation between mechanisms for price and yield risk protection.

Hog Producers' Risk Management Attitudes and Desire for Additional Risk Management Education

Hog producers in Indiana and Nebraska were surveyed about sources of risk, effectiveness of risk management strategies, and prior participation in and desire for additional risk management education. Ownership of hogs by the producer, size of the operation, and age did have significant effects on ratings of both sources of risk and effectiveness of risk management strategies. Probit analysis found age, prior attendance, knowledge and prior use of the tool, level of integration, and concern about price and performance risk have significant effects on interest in further education about production contracts, futures and options, packer marketing contracts, and financial management.