THE DEMAND FOR MULTIPLE PERIL CROP INSURANCE - EVIDENCE FROM MONTANA WHEAT FARMS

An econometric analysis of the demand for multiple peril crop insuranc e is carried out for a sample of 370 Montana wheat farms. The study is the first to model the farm's participation and coverage-level decisi ons separately through Heckman two-stage estimation procedures. These decisions are shown to be determined in different ways. In addition, f arms with positive expected returns from insurance make coverage-level decisions in different ways from farms with negative expected returns . These differences indicate that adverse selection effects limit the efficacy of across-the-board premium rate increases as mechanisms for reducing loss ratios.