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Factors Affecting Farmers' Utilization of Agricultural Risk Management Tools: The Case of Crop Insurance, Forward Contracting, and Spreading Sales

Published online by Cambridge University Press:  26 January 2015

Margarita Velandia ,
Roderick M. Rejesus ,
Thomas O. Knight  and
Bruce J. Sherrick
Margarita Velandia
Affiliation:
Department of Agricultural Economics, University of Tennessee, Knoxville, TN
Roderick M. Rejesus
Affiliation:
Department of Agricultural and Resource Economics, North Carolina State University, Raleigh, NC
Thomas O. Knight
Affiliation:
Department of Agricultural and Applied Economics, Texas Tech University, Lubbock, TX
Bruce J. Sherrick
Affiliation:
Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, Urbana, IL
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Abstract

Factors affecting the adoption of crop insurance, forward contracting, and spreading sales are analyzed using multivariate and multinomial probit approaches that account for simultaneous adoption and/or correlation among the three risk management adoption decisions. Our empirical results suggest that the decision to adopt crop insurance, forward contracting, and/or spreading sales are correlated. Richer insights can be drawn from our multivariate and multinomial probit analysis than from separate, single-equation probit estimation that assumes independence of adoption decisions. Some factors significantly affecting the adoption of the risk management tools analyzed are proportion of owned acres, off-farm income, education, age, and level of business risks.

Keywords

adoption decisionscrop insuranceforward contractingmultinomial probitmultivariate probitrisk managementspreading salesG22Q12Q18
Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 41 , Issue 1 , April 2009 , pp. 107 - 123
Copyright
Copyright © Southern Agricultural Economics Association 2009

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