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Does market competitiveness significantly affect public intervention in agricultural insurance: the case in Italy

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Abstract:

Analyses of agricultural insurance failures often assume the existence of competitive supply, tracing the reasons for high insurance cost and limited farmer participation to informational problems, and suggesting the need for premium subsidization in order to increase participation. However, in countries such as Spain and Italy, where agricultural insurance is most highly subsidized, it could be that supply is not fully competitive. In this article, we explore the incidence of public subsidies to agricultural insurance premia when supply is noncompetitive. Through the use of a simple empirical model of an insurance market, it is shown that, while in the case of a competitive supply, subsidies to insurance would benefit farmers, a monopolistic supply would capture most of the subsidy, thus eliminating the potential incentive towards wider participation by farmers. The model is applied to a panel of Italian farms for different levels of risk aversion to demonstrate the limited effect that a subsidy to a hypothetical all risk yield insurance would have on farmer participation in the case of monopolistic supply.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2010.487823

Affiliations: 1: Department of Agricultural Economics and Policy,University of Naples Federico II, Naples, Italy 2: Agriculture Unit,Institute for the Protection and the Security of the Citizen, Joint Research Center, ISPRA, European Commission, Ispra, Italy 3: Department of Agricultural Economics,University of Bologna, Bologna, Italy

Publication date: November 1, 2011

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