Livestock Disease Indemnity Design When Moral Hazard Is Followed by Adverse Selection
AbstractAverting or limiting the outbreak of infectious disease in domestic livestock herds is an economic and potential human health issue that involves the government and individual livestock producers. Producers have private information about preventive biosecurity measures they adopt on their farms prior to outbreak (ex ante moral hazard), and following outbreak they possess private information about whether or not their herd is infected (ex post adverse selection). We investigate how indemnity payments can be designed to provide incentives to producers to invest in biosecurity and report infection to the government in the presence of asymmetric information. We compare the relative magnitude of the first- and second-best levels of biosecurity investment and indemnity payments to demonstrate the tradeoff between risk sharing and efficiency, and we discuss the implications for status quo U.S. policy. Copyright 2008, Oxford University Press.
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Bibliographic InfoArticle provided by Agricultural and Applied Economics Association in its journal American Journal of Agricultural Economics.
Volume (Year): 91 (2008)
Issue (Month): 3 ()
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- Gramig, Benjamin M. & Horan, Richard D. & Wolf, Christopher A., 2008. "Livestock Disease Indemnity Design When Moral Hazard is Followed by Adverse Selection," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6542, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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