The Role of Probability Information and Choice Complexity in Demand for Crop Insurance under Climate Change

This study examines how probabilistic information about increasing extreme weather events under climate change influences farmers’ demand for crop insurance. Using split samples, the effect of a probability attribute to describe future extreme weather events is tested in a choice experiment, accounting for attribute attendance and choice complexity. Probability neglect is expected under existing low probability-high impact conditions, and attribute non-attendance is indeed highest for this attribute. Adding the probability information furthermore significantly increases choice complexity, resulting in status-quo bias and a significantly lower demand and willingness to pay for crop insurance. At the same time the information about future extreme weather events increases, as expected based on prospective reference theory, farmers’ preferences for damage coverage. Higher probabilities of extreme weather events yield significantly higher demand for crop insurance, possibly due to risk perception updating in response to the provided probability information.