Statistics Seminar - 04/10/25

Abstract:

This paper investigates how the inherent basis risk of area yield insurance (AYI) influences farmers’ decisions to adopt a new high-risk, high-yield technology whose yield risks are imperfectly correlated with those of the existing technology. We develop a theoretical model in which AYI’s basis risk is endogenously determined by the overall technology adoption rate in a region. Our findings reveal that farmers’ expectations regarding the area adoption rate critically shape their technology adoption choices. Specifically, higher anticipated adoption rates reduce the perceived basis risk for adopters, thereby enhancing the risk management benefits of AYI. This dynamic creates strategic complementarities, motivating farmers to align their technology choices with those of their neighbors. Equilibrium analysis demonstrates that coordinated expectations can lead to full adoption of the new technology and result in a Pareto improvement, particularly for incremental innovations. Conversely, coordination failure may yield a partial adoption equilibrium, potentially lowering overall technology uptake and diminishing regional welfare relative to scenarios without AYI.

About the Speaker:

Dr. Xuche Gong joined the Department of Agricultural Economics at Mississippi State University as an assistant professor after earning his Ph.D. at Iowa State University. Dr. Gong's research interests lie in the intersections between agricultural production economics, risk management, and environmental economics. His work delves into the fundamental elements shaping farmers’ decision-making with regard to risk management, production, and technology choices, and examines the effects of these choices on environmental implications and social welfare. Employing robust microeconomic theory and comprehensive empirical data analysis, his work is dedicated to enhancing farmer welfare and promoting positive environmental outcomes through insightful and effective policy evaluations.