The Welfare Analysis Of Agricultural Insurance Under Different Subsidy Patterns

Agricultural insurance forms an important part of the national industrial policy, which is also one of "the green box" policies of the WTO that permits agriculture subsidy. As a result of the failure of private agricultural insurance markets, many countries have adopted different political intervention to subsidize the agricultural insurance market,put agricultural insurance in the position of political insurance, and clearly declare its policy goal in the agricultural insurance legislation. In general, the developed countries usually focus on the rural social security (social welfare) system construction, and take into account the development of agriculture; at the same time,whereas the developing countries ' aim is to improve the welfare of farmers, and promote a stable development of agriculture. Although there is no specific "Agriculture Insurance Act"in China, the " Agriculture Law of the People's Republic of China" modified in 2002 and six No.1 CPC documents from 2004 to 2009 have proposed to establish the Chinese political agricultural insurance system as soon as possible . In particular, the 2008 No.1 document clearly pointed out that: "According to the needs of supply support systeem of agricultural products and enhancing farmers' enthusiasm on farming, subsidy policy for important agricultural products should be made out . This shows that the objective of China's agricultural insurance pilot at this stage is to guarantee the stability of agriculture economy and improve the welfare of farmers. Therefore, from the perspective of the welfare of farmers, and based on the empirical analysis, this paper explores how agricultural insurance under different patterns of finacial subsidies affects the insured farmers and social welfare, as well as provides a selectable policy goals of China's agricultural insurance legislation.Based on the welfare analysis of agricultural insurance subsidy, and from the view of improving farmers' welfare, this paper attempts to study the impact of insured farmers and social welfare, in the condition of premium subsidy or operation and management fees subsidy,then compare the efficiency of the two different subsidies, analyze the influencing factors on subsidy efficiency, finally reach the conclusions. The study focuses on welfare economics theory,through the principle that thinking the price subsidy will have effect on the agricultural insurance market, then we can adopt the change of consumer surplus, producer surplus and social surplus to measure the welfare change of market players. According to existing research and first-hand data from surveys and interviews, this paper deeply explores the theory and practice of political agricultural insurance combining qualitative and quantitative analysis together.The main contents and conclusions of the research are as follows.Firstly, the paper analyzes the theoretical basis why the government should support agricultural insurance. With the welfare economics theory ,it discusses the government subsidy's impact on the welfare of market players. It is found that the implementation of agricultural insurance program in any places is restricted by a minimum participation rate requirement, if some farmers are denied participating in agricultural insurance due to insufficient participation rate,there might exist unrealized potential economic welfare . But government subsidy can reduce insurance price and enhance participation rate so that agricultural insurance program could be carried out in the location ,and such potential welfare will be actually realized .in this case the welfare loss is likely less than conventionally estimated which there is no supply constraints. Therefore, the government subsidy for agricultural insurance is necessary.Second, taking tobacco insurance in Xingshan County as an example, the paper measures the welfare change and the cost-benefit ratio resulted from premium subsidy and the subsidy of operation and management fees under assumed minimum participation rate. The main conclusions are: comparing premium subsidy and the subsidy of the operation and management fees,the former can bring greater well-being to farmers and increase participation rate, but both of the subsidy patterns will cause a net loss of social welfare. On the view of maximizing Farmers' welfare, the government subsidy at this stage should be concentrated on premium subsidies, meanwhile provide a proportional subsidy of operation and management fees to enhance insurance companies to carry out tobacco insurance.Thirdly, the paper analyzes the influencing factors on subsidy efficiency from the perspective of demand for tabacco insurance. The main conclusions are: the main factors affecting farmers' willingness-to-pay(WTP) for tabacco insurance are farmers'insurance awareness and trust on insurance companies. The net income of rural households shows little influence on famers' insurance decision, further explains that relying on government subsidy to reduce premium to stimulate demand for agricultural insurance singlly is not effective as considered, and its efficiency of government subsidies is low. To improve the efficiency of government subsidies, besides the support of government subsidies, one should try to raise farmers'awareness of the importance of insurance and improve the quality of insurance companies' services .In short,the development of agricultural insurance needs to the joint efforts of farmers,companies and government.Finally, based on the empirical analysis on the efficiency of agricultural insurance subsidies, we can see that government subsidies can bring the improvement of the farmers' welfare and an increase of the demand for agricultural insurance, despite existing a net loss of social welfare. In the present agricultural insurance pilot period , government subsidies should be aimed at improving the welfare of farmers, and stabling agricultural production.