Hog insurance adoption and suppliers' discrimination : A bivariate probit model with partial observability

Purpose – This paper explored factors that impact insurance choices of demand (farmers) and supply (insurance companies) side, respectively. Design/methodology/approach – Specially designed survey questions allow one to fully observe the demand tendency from farmers and partially observe the supply tendency from insurance companies. Using bi‐vairate probit model, a joint estimation of insurance decisions of both supply and demand sides suggested that factors perform different roles in affecting insurance participation. Findings – Farmer's age and education have positive impacts on insurance demand, but are indifference to insurance providers. Insurance suppliers care about farmers' experience in the fields when providing insurance services, however, on the demand side, farmers' experience occasionally results in overconfidence and hence, impedes farmers' insurance purchasing. Production scales, proxy by sow inventory, are put more weight by farmers than insurance suppliers when making decisions. Production efficiency measures perform as incentives for farmers to purchase insurance. While suppliers prefer customers who use vaccine, farmers tend to treat vaccine as a substitute for insurance to prevent disease risk. Social implications – Results from bi‐vairate probit model offer deeper understandings about livestock insurance choices and provide further insights to improve policy design and promote participation. Originality/value – The study designed a special questionnaire and firstly used bi‐vairate probit model to offer more understandings about demand and supply sides of livestock insurance.