Nudge to Insure: Can Informational Nudges Increase Enrollment in Pasture, Rangeland and Forage Rainfall Index Insurance?

• Agricultural Economics Workshop

Date and Location

Thursday, February 25, 2021, 4:10 PM - 5:30 PM
Online Meeting, Zoom

Abstract

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. Among producers who do enroll in PRF insurance, there is also a tendency to insure two-month intervals that do not have a significant impact on forage growth, increasing participants’ basis risk. This research explores a novel approach to influencing insurance enrollment decisions: whether exposure to an informational nudge increases the likelihood that a producer enrolls in PRF and/or changes the two-month intervals selected. 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. We do not find evidence that the nudges influenced the interval choices, suggesting a stronger nudge might be necessary. 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.