Factors influencing United States cattle producers use of livestock risk protection

Abstract

United States cattle producers have various government-sponsored programs to protect against weather and disease related risks, but livestock risk protection (LRP) insurance is the only program that protects against price risk. However, adoption of LRP insurance is low even though cattle price declines are the primary cause of economic loss, and LRP premium subsidies have recently been increased. Therefore, the objective of this study is to explore how informational nudges about receiving an indemnity payment, LRP contract characteristics, and individual risk preferences affect the use of LRP. Producer survey results were estimated using a Cragg model to determine the factors affecting producers’ likelihood of purchasing LRP and the number of head they would insure. Producers were more likely to purchase 100% LRP coverage and would also insure more head at 100% coverage when compared to lower coverage levels. We found providing information on the probability of receiving an indemnity did not impact LRP purchasing decisions. However, counter to expectations, producers were more likely to buy LRP when the randomly provided cattle prices in the survey were successively increasing each month, and if participants considered themselves more willing to take risks in their cattle operation. Results provide insights into behavioral factors affecting LRP participation which could help inform future insurance policies.