Imperfect Information and Participation in Insurance Markets: Evidence from Italy

Santeramo, Fabio Gaetano (2017): Imperfect Information and Participation in Insurance Markets: Evidence from Italy. Published in: Agricultural Finance Review , Vol. 2, No. 78 (1 April 2018): pp. 183-194.

Abstract

Participation in crop insurance programs is lowered by imperfect knowledge resulting in adverse selection and moral hazard problems. We aim at investigating how experience in insurance contracts may influence participation in the Italian crop insurance market. From Italian farm-level data we estimate a dynamic discrete choice model of participation to investigate the role of experience. The methodology, coupled with exploratory analysis of the data, allows one to compare the relevance of different sources of experience in the crop insurance decision making process. We found that experience tend to be a catalyst for insurance participation. Policy implications are discussed: in particular we discuss on the importance of bolstering uptake to exploit the advantages of the inertia and spillover effects that emerge from experience. To the best of our knowledge, the role of experience has been underinvestigated. Our analysis has the specific contribution of modeling the potential role of experience (exploited after buying an insurance contract) on uptake in crop insurance programs.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asymmetric information; Dynamic model; Familiarity; Imperfect Knowledge; Uptake
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q12 - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy ; Food Policy

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