Hog insurance is essential for the safety of pork production in developing countries. Although livestock insurance has been found to have positive impacts on farmers’ welfare and agricultural production, it has not lived up to its full potential. In this study, a natural experiment combined with a choice experiment is conducted among hog farms in four townships in China to explore the influence of past experience with hog insurance on farmers’ preferences and willingness to pay (WTP) for hog insurance attributes. Employing the random parameter logit model, we find robust evidence that farmers have heterogeneous preferences for insurance attributes and attach great importance to the involvement of government in insurance operation. Furthermore, farmers’ past insurance experience plays a vital role in their demand for hog insurance and significantly changes their WTP for insurance attributes.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Statistics show that as much as 97.82% of hog producers are small-sized farmers who raise less than 100 hogs (China Animal Husbandry Statistical Yearbook 2015).
The context as well as the natural experiment in our study are the same as in Rao and Zhang (2020) but the focus of these two studies is different. Specifically, Rao and Zhang mainly examined the impact of livestock insurance on farmers’ hazardous actions as well as production decisions by exploiting a two-year natural experiment. However, using one-year experimental data, this paper focuses on exploring the impact of past experience on farmers’ preferences for hog insurance attributes. Similar descriptions of the hog insurance programme and the natural experiment in Jiyuan County can be found in both papers.
The claims data provided by the local insurance company show that 94% of the insured farmers had been compensated at least once during the pilot project. Thus, almost all farmers who participated in the hog insurance programme gained knowledge of hog insurance, from enrollment to making a claim.
Although the hog insurance programme is voluntary, the local government and insurance company commissioned the animal husbandry workers in each township to advertise the benefits of hog insurance and strongly encouraged eligible farmers to participate in the hog insurance programme. Therefore, the participation rate of the pilot townships is very high (the participation rate in our data is around 90%).
These include specified swine diseases (e.g. pseudorabies, swine erysipelas, swine fever and foot and mouth disease), natural disasters (e.g. earthquakes, flooding and mountain landslides) and accidents (e.g. fire and explosions).
If there are too many attributes and levels in the discrete choice experiment, the complicated experimental task will exert a heavy cognitive burden on the interviewee (Hanley et al. 2001). Taking into account the importance of attributes of hog insurance products and the possible response fatigue, we finally chose five attributes.
Article 46 of the Agriculture Law (2003) states that the government has to establish a policy-oriented agriculture insurance system, encourage and support agriculture operators to organise insurance programmes for agriculture production and activities.
For each respondent, interviewers will read a narrative for them, which mainly states the purpose of the choice experiment, provides an example for farmers to understand the attributes of hog insurance and also explains the procedure of making choices from the different options in the different choice sets.
Farmers with hog insurance experience are those in the treatment group, whereas farmers in the control group are treated as inexperienced.
Because the attributes in our study are effect coded, the ratio should be doubled to get the actual WTP (Lusk et al. 2003).
The selection criterion is the significance of the standard deviation parameters of the attribute variables.
Almost all farmers (95% in both groups) enrolled in the unified sow insurance programme in 2012, and only farmers in the treatment group participated in the pilot hog insurance programme in 2013. Since some terms of the hog insurance and sow insurance are quite different (especially the claims terms), it is likely that the experience of participation in the pilot hog insurance programme has an impact on farmers’ preferences for hog insurance products. We refer to this as the ‘experience effect’. It should be noted that the experience effect we measure here is a total effect. We acknowledge that the salience effect may confound the experience effect since farmers completed the choice experiment right after the pilot hog insurance programme. Unfortunately, we are not able to distinguish the experience effect from the salience effect due to data limitations.
Agriculture Law of the People's Republic of China. 2003. The Legislative Affairs Commission of the Standing Committee of the National People's Congress of the People's Republic of China. http://www.gov.cn/banshi/2005-09/12/content_69776.htm. Accessed 18 October 2020.
Akter, S., T.J. Krupnik, F. Rossi, and F. Khanam. 2016. The influence of gender and product design on farmers’ preferences for weather-indexed crop insurance. Global Environmental Change 38: 217–229.
Balogh, P., D. Békési, M. Gorton, J. Popp, and P. Lengyel. 2016. Consumer willingness to pay for traditional food products. Food Policy 61: 176–184.
Bech, M., and D. Gyrd-Hansen. 2005. Effects coding in discrete choice experiments. Health Economics 14 (10): 1079–1083.
Biglari, T., H. Maleksaeidi, F. Eskandari, and M. Jalali. 2019. Livestock insurance as a mechanism for household resilience of livestock herders to climate change: Evidence from Iran. Land Use Policy 87 (May): 104043.
Boyd, M., J. Pai, and L. Porth. 2013. Livestock mortality insurance: Development and challenges. Agricultural Finance Review 73 (2): 233–244.
Cai, H., Y. Chen, H. Fang, and L.A. Zhou. 2015. The effect of microinsurance on economic activities: Evidence from a randomized field experiment. Review of Economics and Statistics 97 (2): 287–300.
Chantarat, S., A.G. Mude, C.B. Barrett, and M.R. Carter. 2013. Designing index-based livestock insurance for managing asset risk in northern Kenya. Journal of Risk and Insurance 80 (1): 205–237.
Chantarat, S., A.G. Mude, C.B. Barrett, and C.G. Turvey. 2017. Welfare impacts of index insurance in the presence of a poverty trap. World Development 94: 119–138.
Chantarat, S., A.G. Mude, and C.B. Barrett. 2009. Willingness to pay for index based livestock insurance: results from a field experiment in northern Kenya. Unpublished manuscript. https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.978.8807&rep=rep1&type=pdf
Chen, K., and J. Wang. Hog farming in transition: The case of China. The Pig Site. 28 February 2013. https://thepigsite.com/articles/hog-farming-in-transition-the-case-of-china. Accessed 18 October 2020.
Cole, S., D. Stein, and J. Tobacman. 2014. Dynamics of demand for index insurance: evidence from a long-run field experiment. American Economic Review 104 (5): 284–290.
FAO. 2007. Livestock and aquacultural insurance in developing countries. FAO Agricultural Services Bulletin.
Fiebig, D.G., M.P. Keane, J. Louviere, and N. Wasi. 2010. The generalized multinomial logit model: Accounting for scale and coefficient heterogeneity. Marketing Science 29 (3): 393–421.
Ghijben, P., E. Lancsar, and S. Zavarsek. 2014. Preferences for oral anticoagulants in atrial fibrillation: A best–best discrete choice experiment. PharmacoEconomics 32 (11): 1115–1127.
Hanley, N., S. Mourato, and R.E. Wright. 2001. Choice modelling approaches: A superior alternative for environmental valuatioin? Journal of Economic Surveys 15 (3): 435–462.
Hensher, D.A. 2010. Hypothetical bias, choice experiments and willingness to pay. Transportation Research Part B: Methodological 44 (6): 735–752.
Hensher, D.A., J.M. Rose, and W.H. Greene. 2005. Applied choice analysis: A primer. New York: Cambridge University Press.
Hole, A.R. 2007. A comparison of approaches to estimating confidence intervals for willingness to pay measures. Health Economics 16 (8): 827–840.
Jensen, N.D., and C.B. Barrett. 2017. Agricultural index insurance for development. Applied Economic Perspectives and Policy 39 (2): 199–219.
Jensen, N.D., C.B. Barrett, and A.G. Mude. 2016. Index insurance quality and basis risk: Evidence from northern Kenya. American Journal of Agricultural Economics 98 (5): 1450–1469.
Jensen, N.D., C.B. Barrett, and A.G. Mude. 2017. Cash transfers and index insurance: A comparative impact analysis from northern Kenya. Journal of Development Economics 129: 14–28.
Jensen, N.D., A.G. Mude, and C.B. Barrett. 2018. How basis risk and spatiotemporal adverse selection influence demand for index insurance: Evidence from northern Kenya. Food Policy 74: 172–198.
Just, D.R., B. Wansink, and C.G. Turvey. 2009. Biosecurity, terrorism, and food consumption behavior: Using experimental psychology to analyze choices involving fear. Journal of Agricultural and Resource Economics 34 (1): 91–108.
Koontz, S.R., D.L. Hoag, D.D. Thilmany, J.W. Green, and J.L. Grannis. 2006. The economics of livestock disease insurance: Concepts, issues and internaitonal case studies.
Lancaster, K.J. 1966. A new approach to consumer theory. Journal of Political Economy 74 (2): 132–157.
List, J.A., P. Sinha, and M.H. Taylor. 2006. Using choice experiments to value non-market goods and services: Evidence from field experiments. The B.E. Journal of Economic Analysis & Policy 6 (2).
Liu, Y., K. Chen, and R.V. Hill. 2020. Delayed premium payment, insurance adoption, and household investment in rural China. American Journal of Agricultural Economics 102 (4): 1–21.
Louviere, J.J., D.A. Hensher, J.D. Swait, and W. Adamowicz. 2000. Stated choice methods: Analysis and application. New York: Cambridge University Press.
Louviere, J., D. Street, R. Carson, A. Ainslie, J.R. Deshazo, T. Cameron, D. Hensher, R. Kohn, and T. Marley. 2002. Dissecting the random component of utility. Marketing Letters 13 (3): 177–193.
Lusk, J.L., J. Roosen, and J.A. Fox. 2003. Demand for beef from cattle administered growth hormones or fed genetically modified corn: A comparison of consumers in France, Germany, the United Kingdom, and the United States. American Journal of Agricultural Economics 85 (1): 16–29.
Mahul, O., and J. Skees. 2007. Managing agricultural risk at the country level: The case of index-based livestock insurance in Mongolia. World Bank Policy Research Working Paper.
McFadden, D.L. 1974. Conditional logit analysis of qualitative choice behavior. In Frontiers in econometrics.
McFadden, D., and K. Train. 2000. Mixed MNL models for discrete response. Journal of Applied Econometrics 15 (5): 447–470.
Möllmann, J., M. Michels, and O. Musshoff. 2019. German farmers’ acceptance of subsidized insurance associated with reduced direct payments. Agricultural Finance Review 79 (3): 408–424.
National Bureau of Statistics of China. 2015. China animal husbandry statistical yearbook. Beijing: China Agriculture Press.
Ortega, D.L., H.H. Wang, L. Wu, and S.J. Hong. 2015. Retail channel and consumer demand for food quality in China. China Economic Review 36: 359–366.
Ortega, D.L., H.H. Wang, L. Wu, and N.J. Olynk. 2011. Modeling heterogeneity in consumer preferences for select food safety attributes in China. Food Policy 36 (2): 318–324.
Peng, W., and Z. Huang. 2017. Contractual arrangements, choice preferences and empirical researches for smallholders: A study based on choice experiment. Journal of Zhejiang University (Humanities and Social Sciences) 47 (4): 143–155.
Ranganathan, T., S. Gaurav, and A. Singh. 2016. Demand for price insurance among farmers in India: A choice experiment-based approach. Margin 10 (2): 198–224.
Rao, X., and Y. Zhang. 2020. Livestock insurance, moral hazard, and farmers’ decisions: A field experiment among hog farms in China. The Geneva Papers on Risk and Insurance—Issues and Practice 45 (1): 134–156.
Santeramo, F.G. 2018. Imperfect information and participation in insurance markets: Evidence from Italy. Agricultural Finance Review 78 (2): 183–194.
Shee, A., C. Turvey, and A. Marr. 2019. Heterogeneous demand and supply for an insurance-linked credit product in Kenya: A stated choice experiment approach. Journal of Agricultural Economics 72 (1): 244–267.
Sibiko, K.W., P.C. Veettil, and M. Qaim. 2018. Small farmers’ preferences for weather index insurance: Insights from Kenya. Agriculture and Food Security 7 (1): 1–14.
Skees, J.R. 2008. Challenges for use of index-based weather insurance in lower income countries. Agricultural Finance Review 68 (1): 197.
Tadesse, M.A., F. Alfnes, O. Erenstein, and S.T. Holden. 2017. Demand for a labor-based drought insurance scheme in Ethiopia: A stated choice experiment approach. Agricultural Economics 48 (4): 501–511.
Takahashi, K., M. Ikegami, M. Sheahan, and C.B. Barrett. 2016. Experimental evidence on the drivers of index-based livestock insurance demand in southern Ethiopia. World Development 78 (480): 324–340.
Train, K.E. 2009. Discrete choice methods with simulation. Second edition.
Train, K., and M. Weeks. 2005. Discrete choice models in preference space and willingness-to-pay space. In Applications of simulation methods in environmental and resource economics.
Turvey, C. 2006. Conceptual issues in livestock insurance. In The economics of livestock disease insurance: concepts, issues and internaitonal case studies.
Turvey, C.G., B. Onyango, C. Cuite, and W.K. Hallman. 2010. Risk, fear, bird flu and terrorists: A study of risk perceptions and economics. Journal of Socio-Economics 39 (1): 1–10.
Vrieling, A., M. Meroni, A. Shee, A.G. Mude, J. Woodard, C.A.J.M. de Bie, and F. Rembold. 2014. Historical extension of operational NDVI products for livestock insurance in Kenya. International Journal of Applied Earth Observation and Geoinformation 28: 238–251.
Wang, H.H., L. Liu, D.L. Ortega, Y. Jiang, and Q. Zheng. 2020. Are smallholder farmers willing to pay for different types of crop insurance? An application of labelled choice experiments to Chinese corn growers. The Geneva Papers on Risk and Insurance—Issues and Practice 45 (1): 86–110.
Wang, M., P. Shi, T. Ye, M. Liu, and M. Zhou. 2011. Agriculture insurance in China: History, experience, and lessons learned. International Journal of Disaster Risk Science 2 (2): 10–22.
Ye, T., Y. Liu, J. Wang, M. Wang, and P. Shi. 2017. Farmers’ crop insurance perception and participation decisions: empirical evidence from Hunan, China. Journal of Risk Research 20 (5): 664–677.
Zhang, Y., X. Rao, and H.H. Wang. 2017. Organization, technology and management innovations through acquisition in China’s pork value chains: The case of the Smithfield acquisition by Shuanghui. Food Policy 83: 337–345.
Zhang, Y., X. Zhu, and C.G. Turvey. 2016. On the impact of agricultural livestock microinsurance on death-loss, production and vaccine use: observations from a quasi-natural experiment in China. The Geneva Papers on Risk and Insurance—Issues and Practice 41 (2): 225–243.
Zhou, L., C.G. Turvey, W. Hu, and R. Ying. 2016. Fear and trust: how risk perceptions of avian influenza affect Chinese consumers’ demand for chicken. China Economic Review 40: 91–104.
This research was supported by Zhejiang Provincial Natural Science Foundation of China under Grant No. LZ17G030001, Humanities and Social Sciences Foundation of Ministry of Education of China (20YJA790093), Chinese National Social Science Foundation (19ZDA117) and the Fundamental Research Funds for the Central Universities.
Conflict of interest
On behalf of all authors, the corresponding author states that there is no conflict of interest.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Narrative to be read to respodents:
Agricultural insurance is an important strategy to disperse farmers’ production risks. Hog insurance products are one type of agricultural insurance product. One of the purposes of this study is to design hog insurance clauses that meet the needs of farmers. Your responses are important and will be completely confidential and under no circumstances will your responses be identifiable. We sincerely hope for your support. Thank you!
Assume that you are going to purchase hog insurance products. If you could only choose from the following two choices or opt-out, which one would you choose? (Please check only one of the boxes for each choice set).
Note: Interviewers should explain the meanings of each attribute to respondents and provide an example to explain coverage and excess attributes.
Insurance type: policy-oriented insurance (government involvement) or commercial insurance (no government involvement).
Coverage: the amount of maximum indemnity that you could receive when a hog dies.
Excess: the base animal weight from which any indemnity will be paid.
Time: the time it takes to receive payment from the insurer after death was verified.
Premium: the premium paid by you.
Example: You have an insured hog whose insured amount (i.e. coverage level) is CNY 500. The insurance company pays the indemnity based on the weight of the dead hog, which is CNY 5 per kg (CNY 500/100 kg = CNY 5/kg). That is, if the dead weight of the hog is 30 kg, then the insurance company will pay you 5 × 30 = CNY 150.
Below, we will show you different insurance products bundled by different levels of attributes. There is a total of eight choice sets. Please compare and choose products A and B in each choice set, or you can choose to opt-out (i.e. product C). The attribute levels of hog insurance are hypothetical and no actual monetary transactions will occur. However, please try your best to consider a reality-based mindset.
(Please check only one of the boxes for this choice set)
About this article
Cite this article
Cai, Q., Ding, Y., Tuvey, C. et al. The influence of past experience on farmers’ preferences for hog insurance products: a natural experiment and choice experiment in China. Geneva Pap Risk Insur Issues Pract 46, 399–421 (2021). https://doi.org/10.1057/s41288-021-00209-7
- Insurance experience
- Choice experiment
- Willingness to pay
- Hog insurance