An Economic Effect of the Crop Insurance at the Farmland in Korea

Abstract

Climate change has a direct and indirect impact on agricultural production through rising temperatures, changes in precipitation and extreme weather events. To cope with climate change efficiently, it is important to carefully estimate the economic effects of adaptation measures and establish innovative methods based on the findings. In this study, we examine statistically the damage and correlation of natural disasters, which are soaring due to climate change, and farm income, and measure the economic effect of crop insurance, which is a representative option for climate change adaptation. To achieve the purpose, we employ the Just-Pope model to perform an econometric analysis and use the data of orchard households. The empirical analysis demonstrates that there exists a negative effect of extreme weather on farm income and the negative effect increases as frequency of weather disasters increases. However, the study also proves that crop insurance is an effective adaptation measure and the economic effect of the crop insurance is greater as more frequent extreme weather events occur.Finally this study shows that insured farmers receive benefits of 1.39 million KRW in comparison with uninsured farmers.