Willingness to Pay for a Potential Insurance Policy: Case Study of Trout Aquaculture

Abstract

Using trout producer survey data and the contingent valuation method, we estimate willingness to pay for a potential insurance policy. The survey was conducted in 2005 across the United States; 268 producers completed the survey instrument, resulting in a response rate of 81 percent. Design of the contingent valuation method takes into account two coverage levels and four premium rates. Using standard willingness-to-pay techniques, we assess the premium rate that producers with varying practices and regions are willing to pay for two different coverage levels of insurance. In general, trout producers appear willing to pay premium rates of 2 to 11 percent for these coverage levels.

Willingness to Pay for Potential Standing Timber Insurance

“…We follow the Hite, Hudson, and Intarapapong (2002) and Shaik et al (2008) variant of Cooper, Hanemann, and Signorello's (2002) one-and-one-half-bounded (OOHB) approach to estimate landowner WTP for standing timber insurance by developing a contingent valuation method (CVM) mail survey. The basic rationale underlying CVMs is that even without a market, there still exists a latent demand curve for the good (Hanemann, 1994).…”

“…However, when many respondents with zero WTP are present in the sample, a discontinuity can occur in the WTP distribution, and consequently, traditional estimation of WTP may result in a biased estimate of mean WTP and poorly estimated marginal covariate effects (Haab, 1999). To solve this problem, similar to the well-known spike model (Kriström, 1997), the variant OOHB format (e.g., Hite, Hudson, and Intarapapong, 2002; Shaik et al, 2008) differentiated between zero WTP and positive WTP in the survey and added a term to the interval-censored likelihood function that captured the zero WTP information.…”

“…In the follow-up question, landowners were asked if they would pay any positive amount for the insurance given a specific coverage level. This follow-up question differentiates between positive WTP responses and zero (or negative) WTP responses and allows for a greater and more definitive delineation of censoring points in the likelihood function (Shaik et al, 2008). Additionally, the convention of coding “Don't know” as a “No” vote, as was done in Hite, Hudson, and Intarapapong (2002) and Shaik et al (2008), was employed.…”

“…Chen, Goodwin, and Prestemon (2014) filled in this gap by studying timber insurable on the supply side and proposed associated actuarially fair premium rates. However, evaluating a new insurance product evokes fundamental questions about whether a potential product design sufficiently appeals to the potential clientele to justify its development costs (Shaik et al, 2008). Is there a demand for standing timber insurance?…”

On consumer preferences and the willingness to pay for term life insurance

“…Furthermore, there is a large strand of the development economics literature aimed at assessing the WTP for health coverage in rural areas across Africa (see, e.g., Asenso-Okyere et al, 1997;Dong et al, 2003;Ichoku et al, 2010), Asia (see, e.g., Asgary et al, 2004;Zhang et al, 2006;Chen et al, 2011), India (see, e.g., Mathiyazaghan, 1998;Dror et al, 2007), as well as Latin America (see, e.g., Vargas Bustamante et al, 2008;Eckhardt et al, 2011). Besides, preferences and WTP have been studied for crop insurance (see, e.g., Sherrick et al, 2003;Heenkenda, 2011), livestock insurance (see, e.g., Shaik et al, 2008;Buchenrieder and Fischer, 2009;Khan et al, 2013), flood insurance (see, e.g., Botzen and Van den Bergh, 2012), health insurance (see, e.g., Booske et al, 1999;Kerssens and Groenewegen, 2005;Van den Berg et al, 2008), long-term care insurance (see, e.g., Costa-Font and Font, 2009;Jacobs-Lawson et al, 2010), interest rate guarantees in unit-linked life insurance (see, e.g., Gatzert et al, 2011), weather insurance (see, e.g., Fraser, 1992;Musshoff et al, 2008), as well as auto, home, and household insurance (Hansen et al, 2013).…”