Modeling Withdrawal from AgriStability by Ontario Beef Farmers: An Application of Prospect Theory

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Ferner, Emma
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University of Guelph

AgriStability is a government insurance program that protects producers against agricultural risk, and triggers payments based on a historical moving average of the whole-farm profit margin. Though the program fees are highly subsided, participation in the program has been declining over the past decade. This study uses the longitudinal Ontario Farm Income Database (OFID) to investigate Ontario beef farmers' participation behavior in response to farm-level income fluctuations, program payments, farm characteristics, and policy changes between 2003 and 2013. Prospect theory is used to model farmers’ perceived gain and losses, and their resulting withdrawal behavior. Results indicate that larger AgriStability and ad hoc program payments decrease the likelihood of withdrawal, two years of not receiving a payment increases likelihood of withdrawal, and lager farms are more sensitive to changes in net income than program payments. The study aims to provide insight into how farmers perceive and utilize government-funded risk management programs.

Prospect Theory, AgriStability participation, panel data, program exit behaviour, whole-farm income insurance