The impact of agricultural insurance coverage on farm household income inequality: evidence from corn farmers in Liaoning Province, China

Abstract

As climate variability and production uncertainty increasingly threaten agricultural livelihoods, agricultural insurance has become an important tool for climate risk management and farm income stabilization. However, its distributional effects across farm households remain underexplored. Drawing on Sen’s capability approach, this study investigates the impact of agricultural insurance coverage on income inequality among farm households. Using a two-wave panel dataset of 627 corn-growing households in Liaoning Province, China, from 2021 to 2022, we employ a two-way fixed effects model to estimate the effect of agricultural insurance coverage on farm household income inequality. We further test the robustness of the baseline results through a series of checks, including replacing the dependent variable, controlling for village-level fixed effects, adding village-level controls, clustering bootstrap standard errors at the village level and alternative model specifications. Exploratory analysis and heterogeneity analysis are also conducted. The empirical results yield four main findings. First, higher agricultural insurance coverage is positively associated with income inequality among farm households, and this pattern remains robust across multiple tests. Second, the observed association with inequality is concentrated in operating income, with no significant corresponding patterns for wage income, property income, or transfer income. Third, exploratory analysis suggests that agricultural insurance coverage is linked to greater land transfer-in primarily for high-income households, a relationship that is consistent with the observed increased income inequality. Fourth, this association is more pronounced among households with greater realized production loss and among those living in areas without income insurance policies. This study enriches the literature on agricultural insurance by highlighting its unintended distributional consequences. Although agricultural insurance plays an important role in risk management, its potential to widen inequality implies that policy design should not rely on insurance alone. Greater attention to equity requires complementary redistributive instruments, alongside efforts to make insurance more inclusive for disadvantaged farmers.