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Factors Affecting Farmers' Utilization of Agricultural Risk Management Tools: The Case of Crop Insurance, Forward Contracting, and Spreading Sales

  • Margarita Velandia (a1), Roderick M. Rejesus (a2), Thomas O. Knight (a3) and Bruce J. Sherrick (a4)

Abstract

Factors affecting the adoption of crop insurance, forward contracting, and spreading sales are analyzed using multivariate and multinomial probit approaches that account for simultaneous adoption and/or correlation among the three risk management adoption decisions. Our empirical results suggest that the decision to adopt crop insurance, forward contracting, and/or spreading sales are correlated. Richer insights can be drawn from our multivariate and multinomial probit analysis than from separate, single-equation probit estimation that assumes independence of adoption decisions. Some factors significantly affecting the adoption of the risk management tools analyzed are proportion of owned acres, off-farm income, education, age, and level of business risks.

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