Crop Insurance Program Purchase Decision and Role of Risk Aversion: Evidence from Maize Production Areas in China

Risk aversion is a key determinate in risk management in the agricultural insurance market. Based on the unique datasets of risk preference experiment and maize producer survey in maize production areas in China, this paper explores the determinants of farmers’ CIP participation and scrutinizes the role of risk aversion in farmers’ CIP decision. Results show that risk aversion plays an important role in CIP decision, not only in the form of its’ direct effect, but also in the form of interaction term together with loss expected. We also find the purchase experience, CIP environment (village purchase ratio) and contract items (insured amount) are significant determinates in the CIP purchase decision. No significant evidence is found that serious adverse selection exists in the sampling areas.