Agricultural insurance, premium subsidies and chemical inputs: Evidence from China

: This paper investigates the impact of agricultural insurance on chemical inputs per unit area and total chemical inputs, and discusses the sustainability-related implications of these changes. In particular, it considers the interaction of multi-agent decision-making in the agricultural risk management system. We integrate farmers, the government, and insurance companies into a unified theoretical framework, constructing an expected profit model. We examine the logic behind changes in farmers’ chemical inputs and insurers’ optimal premium rate decisions in the context of agricultural insurance and premium subsidies. We use data from the 2020 China Rural Revitalization Comprehensive Survey (CRRS) to empirically test the effects of agricultural insurance on chemical inputs. The key findings are as follows: (1) Compared to uninsured farmers, insured farmers are incentivized to reduce chemical inputs per unit area due to moral hazard (i.e., reduction effect). (2) The insurer’s optimal premium rate decision depends on both insurance premium subsidies and regulatory constraints. A lower premium rate may be set when expanding policy sales is conducive to increasing expected profit. (3) Agricultural insurance encourages farmers to expand their planting area (i.e., expansion effect), and when government premium subsidies are excessively high, the “expansion effect” induced by agricultural insurance dominates, leading to an increase in total chemical inputs. (4) Empirical results show that while participation in insurance leads farmers to reduce chemical inputs per unit area, excessive premium subsidies shift the balance toward the expansion effect, ultimately increasing total chemical inputs. We propose a theoretical framework rooted in the agricultural risk management system, emphasizing the interrelatedness of multi-agent decisions. This framework deepens understanding of agricultural insurance’s impact on chemical inputs and underscores the critical role of coordinated decision-making in agricultural insurance and premium subsidy policy design.