Willingness to Pay for Index Based Crop Insurance in Ghana

Abstract

The study uses a dichotomous contingent valuation method to elicit the willingness to pay for crop insurance among cereal farmers in the Eastern region of Ghana. A sequential decision was considered. An initial decision regarding the willingness to purchase and a subsequent decision on the willingness to pay amount conditional on a positive initial decision was determined. The study employed descriptive statistical techniques to analyse primary data obtained from 208 sampled farmers in the region. Out of the sampled farmers, 52.9% expressed interest in crop insurance. The Probit model was used to estimate the mean willingness to pay (WTP) for crop insurance. The results revealed that farmers were willing to pay approximately GHc 66.2 per cropping season. A Heckman two stage approach was employed to estimate the factors influencing the WTP for crop insurance. The empirical results of the Probit model revealed that marital status, education, crop type, access to extension service, borrowing, savings and awareness of crop insurance influenced farmers’ willingness to purchase insurance. Farmers WTP amount estimated with the Ordinary Least Square regression model was shown to be influenced by variables such as marital status, other occupation, access to credit, borrowing and savings. The study recommends that with adequate and detailed information and affordable premiums, farmers will be willing to purchase insurance. Appropriate distribution channels are also recommended to incite demand for crop insurance.