How do farmers respond to Workers' compensation insurance premiums, hazards, and claim contagion? Empirical evidence from Taiwan

Abstract Workers' compensation benefits are of significant importance to employees generally, though relatively little is known about their application to agricultural workers. We examine how farmers respond to workers' compensation by exploiting the introduction of a unique Farmer Occupational Injury (FOI) program in Taiwan. The FOI provides farmers with income compensation for medical expenses, losses caused by temporary and permanent disability or death, and funeral expenses. We examine farmers' participation decisions and the timing of participation in the program. Using the individual‐level administrative records of the program and a two‐part econometric model, the estimated elasticities of the out‐of‐pocket insurance premium and environmental risk to FOI enrolled days are −0.36 and 0.27, respectively. Claim contagion, a form of moral hazard, has been discussed in the context of workers' compensation programs, though little prior work exists. Using aggregate township‐level panel data, we find evidence of the claim contagion effect. We find that a 1% increase in the cumulative compensation payments increases the number of claims filed in the following period by 0.14%. We also find significant claim contagion for temporary disability and funeral allowance claims, but not for permanent disability.