Optimal strategies for a capital constrained contract-farming supply chain with yield insurance

We consider a capital-constrained contract-farming supply chain with risk-averse farmer and risk-neutral agro-dealer, where the faces some yield uncertainty that can be covered by insurance. Using Stackelberg model, we derive optimal strategies on insured level, production wholesale price. The result shows farmers low risk aversion tend not to insured, while those high insure. Further analysis indicates that, as degree of farmer’s increases, farm size decreases, but per unit area price agricultural product increases. In addition, insurance premium subsidies lead decrease area. However, expansion compensate for inhibitory effect total yield, thus also find when subsidy rate is low, insurance’s value negative. Moreover, increases respect bank’s interest rate.