The influence of flood risk behavior on crop insurance purchase decisions among Bangladeshi smallholder farmers

Abstract

Abstract Bangladesh's agricultural sector is at risk from persistent flooding, and substantial crop losses occur without crop insurance. To better understand the connection between farmers' flood risk behavior and their propensity to purchase crop insurance, this study analyzes survey responses, personal risk assessments, and experimentally obtained risk preferences from 480 flood-prone families in northern Bangladesh. To do this, equally likely certainty equivalent (ELCE), risk matrix and probit model were used. Farmers’ insurance purchase decisions were correlated with their experimental measures of risk aversion and subjective risk perception behavior. Farmers who were risk averse and those who predicted a higher possibility of flooding were more likely to obtain crop insurance. Furthermore, farmers' past flood experience, non-farm earnings, farmers’ group, land ownership, accessibility to extension and informational sources all had significant impact on their crop insurance purchase decisions. The findings may assist policymakers understand farmers' flood-risk behavior, leading to more effective flood-risk measures.