The Impacts of Crop Insurance on Stabilization of Farmer's Income

Any risk in agriculture, finally, will lead in farmers’ income fluctuations, but crop insurance programs only point to the yield risk. In this study Dynamic Stochastic Simulation (DSS) is used to investigate crop insurance effect on income stabilization. For this purpose, 67 representative farms with 31 farm patterns, in 9 regions were selected to simulate insurance program. The results indicate that insurance enforcement causes 13.4 percent alleviation in income fluctuations. Regions, soil fertility, wet land area, and production (or cost) structure had significant impact in the rate of stabilization. Negative impact of production cost revealed the direct effect of increasing return to scale on stabilization, and also possibility of moral hazard. The paper concludes the necessity of adopting approaches to improve the program effect, and it is suggested to consider substitute or complement programs.