Study On The Subsidy Of Agricultural Insurance Based On Interests Game Of Participants

Policy-oriented agricultural insurance in China has made great achievements since the beginning. In2012, the agricultural insurance premium income has reached24.06billion Yuan and guaranteed900.6billion Yuan for183million families. In this year, the insurance company has paid14.8billion Yuan to the28.18million victims afflicted by a natural disaster. The coverage of agricultural insurance has increased dramatically. Crop insurance coverage has reached35%and Forest57.19%. The subsidies species of agricultural insurance had covered all the aspects of the farming, forestry, animal husbandry, sideline and the fishery. The central government subsidies area has also extended to the whole country and the total amount of subsidies has reached42billion Yuan in recent years. The varieties the central government subsidies includes the insurances of rice, corn, wheat, oilseeds, cotton, potato, barley, sugar, to sow, cow, pig, yak, Tibetan sheep, natural rubber and forest, etc. For the crop insurances, the proportion took by the central government are35%of the insurance premium in east areas and40%in central and west areas. The proportion farmer take is only35%-40%of the premium. The proportion of aquaculture insurance is50%in central and west areas and40%in east. The local government also shared30%of the premium, so, the total share the government takes is between80%and90%. The subsidies reduce the farmers’expenditure for agricultural insurance and enhance the enthusiasm of farmers buying enthusiasm.Since2011, the government began the work of performance evaluation of agricultural insurance; set Sichuan, Neimenggu, Anhui, Jiangsu provinces as the evaluation pilots of agricultural insurance performance. However, the work of agricultural insurance evaluation is dependent on the analysis of the subjects’interests related.So, this paper uses the theories and method of welfare economics, econometrics, public finance and game theory to analyze the interests and beavertails of subsidies related subjects in agricultural insurance and put forward some new ideas and suggestions. The main contents and conclusions of this study are as follows:First, the dissertation analyzes the nature of agricultural insurance industry which purpose is to find the theoretical basis of following welfare analysis. Studies have shown that agricultural insurance industry is natural monopoly. So it is not applicable of the perfect competition model in the analysis. The traditional model of supply and demand can’t be used to analyze the behavior of the insurance market, so it has to use other methods for the he welfare analysis of agricultural insurance related subjects. Agricultural Insurance is monopolistic because of its sub-additivity in operation, rivalry in consumption but not excludability, insufficiency of its demand and, the last, the agricultural insurance market practice in Chinese.Second, the dissertation analyzes the interests of the subjects related in agricultural insurance. Policy-oriented agricultural insurance plans have four levels of subjects: central government, local governments, insurance companies, farmers. Each subject has its own interest in a market economy. The interests of the government include two kinds: economic and non-economic. Economic welfare includes the reduced spending of farmers, the profits of insurance company and "externalities" of subsidies. Economic interests embodied in risk aversion, the stability of agricultural production, improvement of living standards of farmers and so on. In agricultural insurance plan, the government is divided into two levels of the central government and local government which economic interests are part of same but different emphasis:the central government focuses more on the overall interest and political stability while the local governments tend to maximize the interests of the local. The interests’local governments’pursuit are relatively independent, which can produce local protectionism and the irrational competition for resources.As the operators of agricultural insurance business, Insurance Companies seek the maximum of their benefit including profits, competitive advantage, government subsidies and preferential policies, etc. Because of the characteristics of agricultural risk, insurance company does not provide cheap agricultural insurance without government support. If the government support, insurance companies can produce irrational competition. When the insurance companies operating agricultural insurance, they will face moral risks come from not only the farmers’, but also their selves.Farmers are the biggest beneficiary of the agricultural insurance plan. Because of small-scale production mode, the low agricultural commercialization rate and the relief efforts after disaster, farmers also want to get the maximum of their utility. They desire insurance, but lack of initiative for participation, concern more about the price than the agricultural risk. The attitude of insurance company and the speed of insurance claims make the farmers lack of trust of insurance company. They want maximize the income, better service attitude and faster claims.When interests between different subjects are consistent, cooperation will happen, when they degree, betrayal will be. Cooperation means the subjects behave according the rules of agricultural insurance plan, no collusion no conspiracy.Third, the dissertation uses AC curve to analyze the impact of subsidies. Government premium subsidies for farmers move the agricultural insurance demand curve to the right, and thus increase the farmers’and insurance companies’welfare. For operating expenses subsidies, it can reduce the operational costs of the insurance company. If insurance companies price at the original level, they will get the full benefit of subsidies. If they price at the new point, farmers will get the full benefit. If they price between the two points, farmers and company will share the benefits. So, the benefits of premium subsidies and operating expenses subsidies are divided between farmers and agricultural company. The proportion depends on the level of premium. The benefit of the subsidies always greater than the subsidy costs regardless of the limit of insurance supply in the market. The welfare of subsidy is more when supply is limited, and there is no deadweight loss in subsidy plan.Fourth, the dissertation studies the game behavior between the agriculture related subjects which includes vertical and horizontal relationship. The vertical game includes the games between central government and local government, government and insurance companies, insurance companies and farmers etc. Horizontal games include the games among local governments and insurance companies. The key of game are insurance resource, proportions of premium, etc. the result of the game are different accord the players different interests. Due to the effect of the subsidies come from the central and local governments are the same, the proportions between they two do not depend on the model, which depends on both sides of the negotiation skills. But, in the central and local game, local governments more willing to be opportunism, the proportion they take is less than the central government. For the company, if the participation rate of agricultural insurance is high and the business is profitable, insurance company is willing to operate agricultural insurance despite the subsidies. If the proportion is not high, the insurance company is able to operate agricultural insurance business as long as the government subsidies can make up for the loss. As long as the farmers expected returns greater than the benefit not to buy agricultural insurance, farmers will buy agricultural insurance. Vertical game between agricultural insurance subjects generates "lazy behavior" and horizontal game tends to create "moral hazard".Fifth, the dissertation studies the cooperative mechanism of agricultural insurance plans and the stability of cooperation. Agricultural insurance scheme can achieve the cooperation between different subjects through the building of supervise mechanism, reciprocity mechanism, the given of residual claims to farmers. Only cooperation benefits are greater than the betray income, players will choose long-term cooperation. The gap between the cooperation income and the betray income is positively related to the weight of a new round of game revenue in the previous round of game gains. As the game repeats, the players in game get more and more understanding to their opponent’s strategy and deduce their own strategy more and more accurately according to the experience. For the betray, this means the chance and benefit of betray get fewer and fewer, the possibility of cooperation is more and more big.