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Predicting probability to purchase insurance contracts in the chilean wine industry: A logit and probit comparative analysis

Abstract:

In the less developed countries the use of market instruments for risk management is still limited. The main purpose of this study is to identify the variables that have an influence on the probability of using insurance contracts in the wine industry of Chile. Binomial logit and probit models were applied using a sample of 84 firms. Our results indicate that the probability of purchasing insurance depend on wine market access and insurance contracts risk management (p<0.01), total surface planted with vineyards, wine prices access, sanitary risk and expected hedging insurance contracts (p<0.05). The global correct prediction was estimated (83.33%) using Receiver Operating Characteristic (ROC) curve analysis. One important conclusion is that viticulturists are more willing to buy insurance contracts if they perceive that these will allow an adequate management of risk.