I Learn, You Learn, We Gain. Experience in Crop Insurance Markets
62 Pages Posted: 19 Nov 2018
Date Written: April 26, 2018
The relevance and the impact of experience in insurance markets are underinvestigated. 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, allows one to compare how different sources of experience influence the crop insurance decision making process. We found that direct experience is a catalyst for insurance participation of medium and large farms. The experience indirectly acquired is also relevant, especially for small farms. Policy implications are discussed: in particular, we discuss on the importance of information campaigns and of bolstering uptake to exploit the advantages of the inertia and spillover effects that emerge from experience.
Keywords: Direct Experience, Dynamic Probit, Imperfect Knowledge, Indirect Experience, State Dependence
JEL Classification: G22,Q12, Q18
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