The Welfare Analysis Of Crop Insurance Subsidy Policy And The Choice Of Insurance Participation Manner

From 2004 to 2007, the central file No.1 has clearly confirmed that the agricultural insurance should be well developed and a policy-supported agricultural insurance system needs to be established and improved. What's more, the financial department of all levels should offer the insured farmers some premium allowance. Therefore, the standard for agricultural insurance allowance has become one of the hotspot issues in the academia now. In the condition of budget-restriction, how to choose efficiency of a maximum allowance in the try-out-area and for the covered crop—to realize the maximum social welfare of the allowance, is, obviously, a selectable and important political goal.Agricultural insurance program is not only one of the important security systems against agricultural risks, but also a non-price tool to protect farm income. In general sense, the justification for government intervention is that adverse selection, moral hazard and system risks make cost much too high but the need of peasants is low, which lead to the failure of private agricultural insurance markets.Economic theory usually assumes the existence of deadweight loss of any price subsidy. The quantitative estimation of such loss might have impact on the decision whether crop insurance should be supported by subsidy from public funds. This research find that the implementation of crop insurance program in any places is restricted by a minimum participation rate requirement, and the demand curve and supply curve may not always meet with each other, If some farmers are denied participating in crop insurance due to insufficient participation rate, there might exist unrealized potential economic welfare. If a subsidy reduces insurance premium and stimulates higher participation so that crop insurance program could be carried out in the location, such potential welfare will be actually realized. In this case, the welfare loss is likely less than conventionally estimated, and there might even be a net increase in social welfare. Budget constraints usually require maximization of social welfare of any public support expenditure. Holding other conditions constant, the social welfare of policy subsidy to crop insurance depends on fanners' demand for crop insurance: both the amount of required subsidy and the potential welfare change are determined by fanners' true demand for crop insurance. Lack of revealed preference the willingness-to-pay (WTP) is a widely adopted approach in estimating consumers' demand.The overall goal of the study is to systemically explore the efficiency of agricultural insurance subsidies, verify the situation that agricultural insurance subsidies (or such compulsory insurance which uses administrative means instead of subsidies policies) make net increase in welfare and identify the determining factors of welfare. As is encouraged by the program, this research will provide additional incentives for policy makers to reconsider efficiency impact of the current crop insurance programs. There are 3 main parts in this thesis, shown as the followings:Part 1: The welfare measure of crop insurance subsidy policyDichotomous choice with open-ended followed up contingent Valuation Method (CVM) is applied to household survey data on willingness-to-pay(WTP) collected for cotton insurance in Xinjiang province, corn insurance in Heilongjiang province, and rice & wheat insurance in Jiangsu province to measure the welfare change and cost-benefit ratio resulted from the subsidy under assumed minimum participation rate. The empirical results show that: (1) with the same participation rate, the welfare loss is likely less than conventionally estimated, and there might even be a net increase in social welfare. (2) WTP of the same clause not increase with the insured amount, but the cost-benift ratio of subsidy is decreased, it implicated that the way of crop insurance is "low premium, low coverage level " at present. (3) the crop insurance demand of Xinjiang is higher than Heilongjiang and Jiangsu province.Part 2: To evaluate farmer's willingness to pay for crop insurance programThe empirical results show that the yield's variation, frequency of losses caused by natural hazards, family income and its share in insured crop, extent of trust on government's policy, and farmers' knowledge of crop insurance are affecting farmers' willingness to pay for crop insurance program with statistical significance, this indicated that the crop insurance should be put in the area which is higher degree of crop specialization, more lager scale and more disaseter be ecountered ;the goverment have to build good imagination to the farmers, let farmer trust them, trust insurance programe.Part 3: Feasibility and operability of the compulsory insuranceBased on the experience of the participative styles in domestic and overseas agricultural insurance, there are three ways to participate—entirely compulsory insurance, conditional compulsory insurance and conjoining compulsion and subsidy insurance. No matter which way is adopted, the social welfare changing direction it produces lies on the degree of farmers' payment willing which is their needs for agricultural insurance. Meanwhile, the amount of the compelled farmers indicates the degree of difficulty and easiness to compulsorily perform it. The demonstration outcome makes clear that if entirely compulsory insurance is adopted, every insurance variety or item will only realize a minority's benefits on the loss of majority's , so the total social welfare is negative. From the income distribution aspect, there is a deteriorating problem of the income distribution in Jiangsu district, which is "rob of the poor to help the rich". If the conditional compulsory insurance is adopted, the legal participating areas under every item of 80% attending insurance rate is ensured, according to which the compulsive farmer amount , farmers' welfare loss and the entire social welfare change are figured out. The result shows that compared with the entirely compulsory insurance, the amount of compulsive farmer's decreases by 3/1 to 2/1, and the total social welfare diminishes too. From the income distribution aspect, agriculture provides the main income in Xinjiang and Heilong District. The larger its growing scale, the higher its income is, so compelling the chief farmers to participate did not worsen the income distribution and especially did not injure the Poor's interests. In Jiangsu District, the influence to income distribution was not distinct. If the compulsion and subsidy is combined, the result shows that the total social welfare's change is the same as the entirely compulsory insurance. It was just that the financial transfer made up part of the farmers' welfare loss. This method did not arouse the income distribution's deterioration.