Can agricultural insurance encourage farmers to apply biological pesticides? Evidence from rural China

• We study the effects of agricultural insurance on pesticide application in China. • Purchasing agricultural insurance helps to encourage farmers to apply biological pesticides. • Purchasing agricultural insurance reduce the use of chemical pesticides. • Agricultural insurance can reduce the risk of applying biological pesticides. • Moral hazard is an important factor in encouraging farmers to apply biological pesticides. Based on the survey data from farmers in Hubei, Jiangxi, and Zhejiang provinces, this paper constructs a theoretical model of the impact of agricultural insurance on farmers’ biopesticide application behavior. Furthermore, it adopts the endogenous switching probit model to empirically analyze the effect of agricultural insurance on farmers’ biopesticide application behavior. We also estimate the probability that farmers will buy agricultural insurance and apply biological pesticides under the counterfactual framework. The results show that, first, 59.12% of the farmers in the sample area have purchased agricultural insurance and that 62.45% of the farmers have used biological pesticides. Second, the overall average treatment effect is 0.082. This indicates that, if all farmers buy agricultural insurance, the probability that farmers will apply biological pesticides increases by 8.2%. It can be seen that purchasing agricultural insurance encourages farmers to apply biological pesticides. Third, purchasing agricultural insurance can encourage farmers to increase the use of biological pesticides and reduce the use of chemical pesticides. In addition, purchasing agricultural insurance increases the ratio of the amount of biological pesticides to chemical pesticides. This finding shows that agricultural insurance can increase the relative importance of biological pesticides.