Modeling of Crop Insurance and Risk in Stabilizing Crop Productivity and Income: A System Dynamics Study

Abstract

The primary purpose the paper is to understand the dynamic complexity among the relationships of crop insurance, risk, crop productivity, and income of farmers. The study adopted a unique method i.e. system dynamics (SD) and causal loop diagram (CLD) methods to uncover the complexity. Further, with this method, the study examines the dynamic interrelationships among crop insurance, risk perception, productivity, and farm income. The developed model was later validated using the feedback from stakeholders. The results suggest that there are four important loops in the generic model of the system. They are: (R1) Loan and Investment Loop, (R2) Risk Perception Uncertainty Loop, and two balancing loops viz. (B1) Protection Failure Loop and (B2) Productivity Failure Loop. The generic model highlights that how timely credit and reduced uncertainly can create a virtuous cycle of higher input investments and crop productivity. The results also reveal that the external shocks and delay in claim settlement may generate adverse impact and can weaken income stabilization among farmers. The study provides a robust framework (generic model) which can guide various stakeholders (policymakers, decision makers, government, society, farmers, and local authorities) to evaluate and redesign crop insurance interventions under evolving climate risks.