March 8th, 2021 at 12pm EST:
Assistant Professor of Applied Economics, University of Delaware
Nudge to Insure: Can Informational Nudges Increase Enrollment in Pasture, Rangeland and Forage Rainfall Index Insurance?
Pasture, Rangeland, and Forage (PRF) rainfall index insurance is designed to protect farmers and ranchers against the loss of forage produced to feed livestock. Enrollment in PRF remains low, despite the large number of livestock operations that depend on precipitation and forage for profitability, the fact that PRF is subsidized, and the existence of few other livestock insurance options. This research explores a novel approach to increasing insurance enrollment: whether exposure to an informational nudge increases the likelihood that a producer enrolls in PRF. We conduct a framed field experiment motivated by elements of the behavioral economics and crop insurance demand literatures to simulate PRF decisions among livestock farmers in the Northeast and Southeast United States. We find modest evidence that informational nudges were effective in increasing enrollment. Specifically, framing PRF as a risk management decision increases the likelihood that a participant will enroll, whereas framing PRF as a one-time investment has little to no effect on enrollment. Findings also illuminate factors that increase the likelihood of PRF enrollment, such as risk aversion and prior experience with PRF or other insurance programs. This experiment provides evidence that USDA RMA, Cooperative Extension educators, and crop insurance agents could increase enrollment in PRF without increasing premium subsidies simply by encouraging producers to reflect on the months when rainfall is most important to avoid forage loss on their operations. Given this is the first study using nudges to explore farmer behavior in the Federal Crop Insurance Program, we believe this research direction shows promise and should be explored more thoroughly in the future.