Some Simulation Results for a Green Insurance Mechanism

By: Baerenklau, Kenneth A.


Baerenklau, Kenneth A., Some Simulation Results for a Green Insurance Mechanism, Journal of Agricultural and Resource Economics, Volume 30, Issue 1, April 2005, Pages 94-108

This analysis extends previous work on green insurance by proposing a mechanism that offers a stronger adoption incentive and is applicable to heterogeneous populations and non-binary adoption decisions. Endogenous learning about the new technology is incorporated, and empirically calibrated simulation results are presented for the case of reduced-phosphorus dairy diets. Results show that the mechanism has a significant impact on behavior and may incur no net cost for the regulator when an insurance premium is charged. Conditions under which a green payment mechanism may be preferable to green insurance also are discussed.