Participation in Multiple-Peril Crop Insurance: Risk Assessments and Risk Preferences of Cranberry Growers

To investigate the poor participation rate of cranberry growersin the multiple-peril crop insurance program, a sample of 15 Massachusetts growers was interviewed. According to their risk preferences, a much greater proportion of growers should have insured, than actually did, A possible solution is to match the distribution used by the insurer closer to that believed by the grower. Adjusting each grower’s historical yield series for trend brought the historical and subjective mean yields much closer. However, an aggregate test found the effect of adjustment to be insignificant, implying that the avenu~;or-increased participation lies elsewhere. Willingness to purchase crop insurance de-pends on the inherent riskiness of crop pro-duction, the grower’s risk preference, and the size of the premium. Specifically, the pur-chase decision is governed by how the grower perceives the risk and how well it appears to match the risk assessment implicit in the in-surance coverage offered. If a farmer is suf-ficiently averse to risk in crop income, and if crop insurance provides risk reduction, the farmer would be expected to participate. In this article several potential influences on the participation rate of cranberry growers are examined. The study attempted to measure the subjective risk assessments and degrees of risk aversion of a sample of growers, analyze the insurer’s assessment of risk and compare it with the growers ’ views, and determine the conditions under which insurance participa-tion would be optimal. The approach is similar to that of Zering, McCorkle, and Moore. The analyses differ in that Zering er af. dealt with multicrop farms; the present study focused on those that grow a single crop. It also put more emphasis on the different implications of sub-jective and historically-based yield assess-ment. Very few other studies have combined th