Risk Aversion Level Influence on Farmer’s Decision to Participate in Crop Insurance. A review

Abstract: Agricultural insurance in Indonesia is focused specifically on Rice Farming, locally known as Asuransi Usahatani Padi (AUTP). To encourage farmers participation, the government subsidizes farmers‘ cost of insurance (premium) by 80%. Despite high subsidy, AUTP is still unable to reach the coverage target. The objectives of this study are to investigate farmers Risk Aversion Level (RAL), its influence on farmers decision and the effect of farmers participation in AUTP on their income. The result of this study can contribute to enrich agriculture insurance literature from developing countries point of view and catalyse others study on this matter especially in Indonesia. The analysis methods used in this study were multiple pricelist designs and propensity score matching with a logistic regression model. A number of 130 farmers were interviewed. The results showed that farmers tend to have a high level of risk aversion where 82.3% of farmers insure almost all of their land. RAL has a significant effect on farmer' decision to purchase AUTP (<0.01). A positive value of Average Treatment on The Treated (ATT) indicated that participation in AUTP has a positive impact on farmers' income. AUTP is able to absorb production risks and encourage high input use in the farming implementation.

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