Agricultural Drought Risk Management:Self-insurance And Agricultural Drought Insurance

The drought have a great impact on agriculture. It is not only brings enormous losses to farmers, but also hinders the development of national economy. Therefore, establishing and developing the mechanism of agricultural drought risk management can ensure the sustainable development of rural economy and the stability of the national economy. Self-insurance and market insurance are both effective to cope with the risk of agricultural disaster. But the classic study of insurance demand by Ehrlich and Becker (1972) had shown that, they are substitutes. So, what’s the relationship of agricultural drought insurance and self-insurance, and how much the self-insurance will be extruded by the agricultural drought insurance is not clear. This problem will affect the overall level of agricultural drought risk management.This paper is about the relationship of self-insurance and agricultural drought insurance, which based the research of Ehrlich and Becker (1972).Then evaluating the agricultural drought insurance from the angle of self-insurance, and promoting the level of agricultural drought risk management. At first, clarifying the concepts of self-insurance and agricultural drought insurance in the agricultural drought risk management, and analyzing their roles and implementations. Secondly, the relation for the agricultural drought insurance and self-insurance will be analyzed under the framework of expected utility and an indifference curve, which study for Ehrlich and Becker(1972). Finally, using multivariate linear model to analyze the data of survey database of farmers’willingness to buy rice drought insurance in Sichuan Province ", which surveyed in2010.In the model, considering when farmers purchase additional drought insurance, they will reduce investment of self-insurance to control the drought or not, then verifying whether agricultural drought insurance squeeze out self-insurance.The main conclusions as follows:(1) Self-insurance and agricultural drought insurance can coexist. Farmers will still conduct self-insurance after they purchased agricultural drought insurance. They are showed to be combined with each other and coexist under the existing design of the agricultural drought insurance system.(2) The agricultural drought insurance squeezes out self-insurance limitedly. The investment of self-insurance will be reduced when purchase agriculture drought insurance, but the extent is limited. The farmers will still maintain normal investment of self-insurance.(3) The design of agricultural drought insurance system is feasible, but still needs to increase its level of protection. The agricultural drought insurance has a high penetration rate. After disaster, the cost of production can be compensated partly, that just to ensure agricultural reproduction. But it is difficult to ensure the growth of peasant’s income, also can not protecting the security of agricultural investment and the stability of agricultural production.(4)The level of agricultural drought risk management can be maximized through improving the security level of agricultural drought insurance and reducing the cost of self-insurance at the same time. Improving the subsidies of agricultural drought insurance will squeeze out self-insurance in greater extent, but the cost of self-insurance can be reduced by taking measures as a better agricultural infrastructure. This will balance agricultural drought insurance and self-insurance.According to the research conclusion, it can put forward the following suggestions:(1) Perfecting the agricultural drought insurance and improving the protect level of agricultural drought insurance.(2) Reducing the cost of self-insurance through enhancing the construction of farmland irrigation and water conservancy, and perfecting the agricultural infrastructures.(3) Taking diverse forms to develop agriculture and increasing farmers’non-agricultural income, enhancing the anti-risk ability by their own.