Moral Hazard in Crop Insurance and Irrigation Intensity: Evidence from Farmers’ Water Use Behavior in Kohgiluyeh and Boyer-Ahmad Province

Articles in Press

Document Type : Applied Article

Author

arsalan biniaz

Assistant Professor in Agricultural Economics at Payame Noor University (PNU), Tehran, Iran

10.22067/jwsd.v13i2.2604-1515

Abstract

This study examines the impact of agricultural insurance on water consumption and investigates the presence of moral hazard in agricultural production. The analysis is based on cross-sectional data collected from 180 farmers producing selected crops (wheat, apple, walnut, and grape) in Kohgiluyeh and Boyer-Ahmad province. To ensure robust estimation and control for selection bias, a combination of econometric methods including Ordinary Least Squares (OLS), Logit model, Propensity Score Matching (PSM), and Endogenous Switching Regression (ESR) is employed.

The results reveal that agricultural insurance has a positive and statistically significant effect on water consumption. The OLS estimates indicate that insured farmers consume approximately 6.8 more units of water on average, while the mean difference between insured and uninsured farmers is about 12.8 units. The PSM results confirm that the Average Treatment Effect on the Treated (ATT) ranges between 8.9 and 9.4 units. Furthermore, ESR findings validate the presence of selection bias and show that insured farmers would consume less water in the absence of insurance. The heterogeneity analysis indicates that the effect of insurance is significantly stronger in perennial crops such as walnut and apple (up to 18 units difference) compared to annual crops like wheat.Overall, the findings confirm the existence of moral hazard in agricultural insurance systems, where reduced risk exposure leads to increased water consumption. These results highlight the need for integrated policy design that aligns insurance schemes with sustainable water resource management.

Keywords

Agricultural Insurance

Moral Hazard

Water Withdrawal Intensity

Irrigation Behavior

Water Resource Management

Subjects

• Water Management and Economy

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