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Asymmetric Information In Cotton Insurance Markets: Evidence From Texas

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  • Makki, Shiva S.
  • Somwaru, Agapi

Abstract

In recent years, the crop insurance program has emerged as an important part of the U.S. farm policy. Farmers responded to the crop insurance program with increased participation nationwide. At issue is whether the rapid expansion of the program has worsened the asymmetric information problems in crop insurance markets. This paper investigates the presence of adverse selection in cotton insurance markets. Our results reject the conditional independence of the choice of insurance contracts and risk of loss, implying the presence of informational asymmetries between the insurer and insured in Texas cotton insurance markets. Results show that actual premium rates are significantly different from both pure and fair premium rates.

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File URL: http://purl.umn.edu/19827
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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2002 Annual meeting, July 28-31, Long Beach, CA with number 19827.

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Date of creation: 2002
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Handle: RePEc:ags:aaea02:19827

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Keywords: Risk and Uncertainty;

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  1. Harwood, Joy L. & Heifner, Richard G. & Coble, Keith H. & Perry, Janet E. & Somwaru, Agapi, 1999. "Managing Risk in Farming: Concepts, Research, and Analysis," Agricultural Economics Reports 34081, United States Department of Agriculture, Economic Research Service.
  2. Weninger, Quinn & Just, Richard E., 1999. "Are Crop Yields Normally Distributed?," Staff General Research Papers 5064, Iowa State University, Department of Economics.
  3. Richard E. Just & Linda Calvin & John Quiggin, 1999. "Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 834-849.
  4. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
  5. Georges Dionne & Christian Gourieroux & Charles Vanasse, 1998. "Evidence of Adverse Selection in Automobile Insurance Markets," Working Papers 98-24, Centre de Recherche en Economie et Statistique.
  6. Makki, Shiva S. & Somwaru, Agapi, 2001. "Asymmetric Information in the Market for Yield and Revenue Insurance Products," Technical Bulletins 33587, United States Department of Agriculture, Economic Research Service.
  7. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1997. "An Expected-Indemnity Approach to the Measurement of Moral Hazard in Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 216-226.
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