Abstract This study firstly sets up three-phase (including agribusiness firms, retailers and government) Stackelberg game model under government subsidy mechanism. Then, the explicit expressions of the optimal production size decided by the agribusiness firms, the purchasing price decided by the retailers and the subsidy rate decided by the government are derived respectively. Moreover, the effects of model parameters on the interest of three parties are presented. Finally, an example is analyzed with respective to three crop insurance of wheat, corn and cotton in Shandong Province. It is found that the expected profits of agribusiness firms and retailers and the social welfare increase with the government subsidy rate, but decrease with the bank loan interest rate. Furthermore, on account of the comparison among the old and new insurance mechanism of three kinds of crops in Shandong Province, it yields that government insurance subsidy is the key factor to improve the income of the three parties under different probabilities of natural condition. And, the three party incomes are the biggest under the new insurance mechanism with government subsidy. The agribusiness firms are suggested to decrease risk and increase profit by buying agricultural insurance when the government provide them subsidy policy.
