TY  - CPAPER 
AB  - Government subsidized insurance is ubiquitous, yet estimation of demand in such markets remains challenging. Premium charged for a given deductible is determined by actuarial construction, thus observed choice-pairs are endogenous leading to biased estimation under standard econometric approaches. A theoretical model and simulation study are developed, and a new identification strategy proposed. An empirical application using Federal Crop Insurance Program--a $100 billion/year program--data reveals that demand is quite elastic after accounting for this endogeneity. Mistreatment of such endogeneity is likely partly responsible for pervasive faulty findings of inelastic insurance demand in related applications. Policy implications are discussed.
AU  - Woodard, Joshua
DA  - 2016
DA  - 2016
DO  - 10.22004/ag.econ.236151
DO  - doi
ID  - 236151
KW  - Agribusiness
KW  - Agricultural and Food Policy
KW  - Agricultural Finance
KW  - crop insurance
KW  - risk management
L1  - https://ageconsearch.umn.edu/record/236151/files/EndogRateCurveDemand.pdf
L2  - https://ageconsearch.umn.edu/record/236151/files/EndogRateCurveDemand.pdf
L4  - https://ageconsearch.umn.edu/record/236151/files/EndogRateCurveDemand.pdf
LA  - eng
LA  - English
LK  - https://ageconsearch.umn.edu/record/236151/files/EndogRateCurveDemand.pdf
N2  - Government subsidized insurance is ubiquitous, yet estimation of demand in such markets remains challenging. Premium charged for a given deductible is determined by actuarial construction, thus observed choice-pairs are endogenous leading to biased estimation under standard econometric approaches. A theoretical model and simulation study are developed, and a new identification strategy proposed. An empirical application using Federal Crop Insurance Program--a $100 billion/year program--data reveals that demand is quite elastic after accounting for this endogeneity. Mistreatment of such endogeneity is likely partly responsible for pervasive faulty findings of inelastic insurance demand in related applications. Policy implications are discussed.
PY  - 2016
PY  - 2016
T1  - Estimation of Insurance Deductible Demand under Endogenous Premium Rates
TI  - Estimation of Insurance Deductible Demand under Endogenous Premium Rates
UR  - https://ageconsearch.umn.edu/record/236151/files/EndogRateCurveDemand.pdf
Y1  - 2016
T2  - 8584
ER  -