Journal of Rural Development
Effects of Crop Insurance on the Output and Technical Efficiency of Fruit Farms: A Stochastic Frontier Analysis
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AuthorLee, Suhwan
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Publication Date2026.03.21
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Original
This study analyzes the effects of crop disaster insurance on the output level and technical efficiency of fruit farms by using panel data from the Farm Household Economy Survey conducted by Statistics Korea (fruit farm sample, 2003–2023). To capture the possibility that crop disaster insurance directly alters the relationship between input use and production outcomes, the insurance variable was explicitly incorporated into a stochastic frontier production function. The empirical results indicate that insured farms exhibit higher output levels than uninsured farms, suggesting that the risk-mitigating function of insurance encourages more active production and input utilization. Meanwhile, the interaction term between insurance and intermediate inputs shows a statistically significant negative coefficient, implying a reduction or adjustment in intermediate input use following insurance enrollment. This can be interpreted either as a form of moral hazard, whereby management effort for inputs such as fertilizers and pesticides is reduced, or as a rational correction of excessive precautionary input use under uncertainty. The analysis of technical efficiency further reveals that insurance increases the mean of inefficiency while reducing its variance, indicating a dual effect: a potential relaxation of managerial discipline alongside greater stability through reduced heterogeneity across farms. Overall, the findings highlight both the positive and negative effects of crop disaster insurance and emphasize the need for more detailed data to enable item-specific and cultivation-type analyses in future research.
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