Hail Insurance and Pesticide use in French agriculture: an empirical analysis of multiple risks management

This paper investigates the determinants of rapeseed hail insurance and pesticide use decisions using individualpanel data set of French farms covering the period from 1993 to 2004. Economic theory suggests that insuranceand prevention decisions are not independent due to risk reduction and/or moral hazard effects. Statistical testsshow that the pesticide use and hail insurance demand are endogenous to each other. An econometric modelinvolving two simultaneous equations with a mixed censored/continuous dependent variables is then estimated.Estimation results show that rapeseed insurance demand has a positive and significant effect on pesticide use andvice versa. Insurance demand is also positively influenced by the yield’s coefficient of variation and the loss ratio,and negatively influenced by proxies for wealth (including CAP subsidies) and activity diversification.