Research Article
A Test on Adverse Selection of Farmers Decision to Purchase Crop Insurance
@INPROCEEDINGS{10.4108/eai.13-2-2019.2286192, author={Rizky Yanuarti and M. Rondhi and Joni Murti Mulyo Aji}, title={A Test on Adverse Selection of Farmers Decision to Purchase Crop Insurance}, proceedings={Proceedings of the 1st International Conference on Business, Law And Pedagogy, ICBLP 2019, 13-15 February 2019, Sidoarjo, Indonesia}, publisher={EAI}, proceedings_a={ICBLP}, year={2019}, month={10}, keywords={adverse selection agricultural insurance rice farming}, doi={10.4108/eai.13-2-2019.2286192} }- Rizky Yanuarti
M. Rondhi
Joni Murti Mulyo Aji
Year: 2019
A Test on Adverse Selection of Farmers Decision to Purchase Crop Insurance
ICBLP
EAI
DOI: 10.4108/eai.13-2-2019.2286192
Abstract
Adverse selection is one of an operating risk of crop insurance. This happens because farmers have complete knowledge of their farming condition while the insurer is not. Adverse selection can influence farmer decision to buy crop insurance and make insurer pay more claim than the expected. Based on survey data on AUTP collected by questionnaires in Wuluhan Sub-District, Jember, the paper used logistic regression to estimate the relationship between conditions for crop production and farmers’ insurance decision in order to test the existence of farmers’ adverse selection. Due to adverse selection, it's expected that farmers with more risk should be more likely to buy crop insurance in pursuit of the benefits from AUTP. However, the result concluded there is no existence of adverse selection. High rate premium subsidy from governments at all levels can possibly defuse farmers’ adverse selection under the current system of crop insurance.