The Price Insurance Demand of Rice Producers in the Vietnamese Mekong Delta

Methodology

The indirect and direct methods have popularly been applied to calculate the WTP to keep households away from the uncertainties of the market price. One weakness of an indirect method is the use of exogenous time-series information on shocks of prices and yields from household surveys that are not aimed at exploring issues of vulnerability and insurance. Alternatively, the direct method engages household interviews designed particularly to estimate the vulnerability and demand for insurance by households. Thus, this study applies the direct approach (Alexander et al., 2007).

The direct or “contingent valuation” (CV) methods are based on direct questioning of agents (producers, households, etc.) on how much they are willing to pay for avoiding an undesirable event, or for having available a possibly welfare improving instrument such as a given amount of an insurance contract.

The major problems with this approach largely have to do with the specification of the “scenario” or the “benchmark” against which the agent is supposed to compare the current situation, and express a monetary value for what it is worth to him/her to move to the new situation, or avoid a bad one. It is not always easy to specify this scenario appropriately, especially if it involves a rather improbable event, and this lies at the heart of most criticisms of this approach. However, in the case of well-specified risks, such as price or yield variations, it is likely that farm households are familiar not only with their normal values, but also with their variability over time, and hence the above criticism may not be valid.