Modeling farm-level crop insurance demand with panel data

A random-effects, binomial probit model is applied to data for a panel of Kansas wheat farms to examine Multiple Peril Crop Insurance demand. A theoretical model is developed which suggests inclusion of the moments of both market return and the return to insurance. Empirical results indicate that the first and second moments of both market return and the returns to insurance are significant. The price elasticity of demand is estimated to be -0.65. Preseason weather variables when included in the models were not found to be significant, failing to support the hypothesis of intertemporal adverse selection.