Government policies in changing climate and the demand for crop insurance

Crop insurance markets are exposed to unpredictable weather conditions. Yield risks are systemic in nature, and public intervention is often a necessity for the functioning private crop insurance markets. Climate change is expected to increase catastrophic weather events and yield volatility. This paper addresses the question how government actions related to extreme weather events affect the demand and farmers willingness to pay for crop insurance products. The analysis is based on farmers’ stated preferences with split data approach. Our results reveal that farmers’ willingness to pay for crop insurance was different when government disaster relief was possible compared to the situation where disaster relief was not possible. Results show that possibility for disaster relief payments in catastrophic event will lead to extensive misuse of taxpayers’ money if crop insurance premiums are subsidized simultaneously.