An econometric analysis of the demand for multiple peril crop insurance is carried out for a sample of 370 Montana wheat farms. The study is the first to model the farm's participation and coverage-level decisions separately through Heckman two-stage estimation procedures. These decisions are shown to be determined in different ways. In addition, farms with positive expected returns from insurance make coverage-level decisions in different ways from farms with negative expected returns. These differences indicate that adverse selection effects limit the efficacy of across-the-board premium rate increases as mechanisms for reducing loss ratios. Copyright 1996, Oxford University Press.

Beef cattle producers were surveyed in Texas and Nebraska to investigate perceptions of sources of risk, the effectiveness of risk management strategies, and interest in further risk management education, particularly production risk, using probit analysis. Important decision variables identifie are age, prior use of risk management tools, previous attendances of risk management education, and risk aversion. Severe drought and cattle price variability are identifie as primary risk factors with potential to affect farm income. Extremely cold weather and disease are of less importance. Understocking pasture and storing hay are perceived most effective as risk management options. I t is often assumed that the management of risk is of paramount importance to crop and livestock producers (Barry; Hardaker, Huirne, and Anderson). Yet, very little information is available on how livestock producers perceive and manage risk. In this paper, we present the results of a unique large-scale and broadly focused survey of beef producers' perceptions of risk and preferences for risk management. Information is offered on both production and, to a lesser extent, price risk.

A multinomial logit is utilized to model the choice of whether to purchase yield or revenue insurance using subjectively elicited survey data. Our results indicate that the demand for crop insurance is inelastic (20.40), consistent with most earlier yield elasticity estimates, but the elasticity for choices between yield and revenue insurance is found to be relatively more elastic (20.88).

Using yield data for a sample of 123 dryland wheat producers in Montana, the effects of three area yield contracts, including the contract currently offered by the United States Federal Crop Insurance Corporation and two individual yield contracts on individual farm yield variability, are examined. The results indicate that while the Federal Crop Insurance Corporation area yield contract provides all farmers in the sample with some protection against yield variability, a simpler, actuarially equivalent “almost ideal” area yield contract provides substantially larger reductions in yield variability. However, actuarially equivalent individual yield contracts provide levels of protection against yield variability similar to those obtained under the “almost ideal” area yield contract at much lower premiums.

Forward pricing behavior of random samples of Indiana, Nebraska, and Mississippi crop producers was analyzed using Heckman's two-step limited information maximum likelihood estimation procedure. Producers who forward priced during the 1995–1998 period generally expected to forward price in 1999 using similar techniques. Probit models were estimated for cash forward contracts and taking a direct position in futures or options separately and combined. Results provide limited support for the hypothesis that forward pricing should be analyzed as an adoption decision. Variables reflecting risk attitudes do affect the decision to use forward pricing, while variables related to economic position affect the level of forward pricing.