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Evaluating the Effects of Asymmetric Information in a Model of Crop Insurance

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Author Info
Michael Hoy () (University of Guelph; Department of Economics.)
Adeyemi Esuola
Zahirul Islam
Calum G. Turvey

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Abstract

Asymmetric information in the form of moral hazard and adverse selection can result in sizeable efficiency losses and program costs for government provided crop insurance plans. We present a methodology and illustrative simulations to show how these two types of information problems interact in way to create program costs for the providers of crop insurance. Our methodology allows us to ascertain the relative contributions to program costs of these two types of phenomenona, which is critical for improving the design of such insurance plans at least possible cost as well as for studying general efficiency considerations.

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Publisher Info
Paper provided by University of Guelph, Department of Economics in its series Working Papers with number 0706.

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Length: 35 pages
Date of creation: 2007
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Handle: RePEc:gue:guelph:2007-6

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Related research
Keywords: Crop insurance; adverse selection and moral hazard.;

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  1. Stewart, Jay, 1994. "The Welfare Implications of Moral Hazard and Adverse Selection in Competitive Insurance Markets," Economic Inquiry, Oxford University Press, vol. 32(2), pages 193-208, April.
  2. Levy, Haim, 1994. "Absolute and Relative Risk Aversion: An Experimental Study," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 289-307, May.
  3. Quiggin, J. & Karagiannis, G. & Stanton, J., 1993. "Crop Insurance And Crop Production: An Empirical Study Of Moral Hazard And Adverse Selection," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 37(02), August. [Downloadable!]
  4. Alan P. Ker & Keith Coble, 2003. "Modeling Conditional Yield Densities," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 85(2), pages 291-304, 05. [Downloadable!] (restricted)
  5. Monica Paiella & Luigi Guiso, 2004. "The Role of Risk Aversion in Predicting Individual Behaviour," Econometric Society 2004 Latin American Meetings 222, Econometric Society. [Downloadable!]
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  6. Weninger, Quinn & Just, Richard, 2002. "Are Crop Yields Normally Distributed?," Staff General Research Papers 5064, Iowa State University, Department of Economics.
  7. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  8. Bar-Shira, Z. & Just, R. E. & Zilberman, D., 1997. "Estimation of farmers' risk attitude: an econometric approach," Agricultural Economics, Blackwell, vol. 17(2-3), pages 211-222, December. [Downloadable!] (restricted)
  9. Blake, David, 1996. "Efficiency, Risk Aversion and Portfolio Insurance: An Analysis of Financial Asset Portfolios Held by Investors in the United Kingdom," Economic Journal, Royal Economic Society, vol. 106(438), pages 1175-92, September. [Downloadable!] (restricted)
  10. Bruce A. Babcock & Joseph A. Herriges, 1994. "Input Demand Under Yield and Revenue Insurance," Center for Agricultural and Rural Development (CARD) Publications 94-wp127, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
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  11. Ker, Alan P & Goodwin, Barry K, 2000. " Nonparametric Estimation of Crop Insurance Rates Revisited," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 82(2), pages 463-78, May. [Downloadable!] (restricted)
  12. Choi, E. Kwan & Menezes, Carmen F., 1992. "Is relative risk aversion greater than one?," International Review of Economics & Finance, Elsevier, vol. 1(1), pages 43-54. [Downloadable!] (restricted)
  13. Picard Pierre, 1986. "On the design of incentive schemes under moral hazard and adverse selection," CEPREMAP Working Papers (Couverture Orange) 8602, CEPREMAP.
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  14. Hoy, Michael, 1989. "The value of screening mechanisms under alternative insurance possibilities," Journal of Public Economics, Elsevier, vol. 39(2), pages 177-206, July. [Downloadable!] (restricted)
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