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Further Toward a Theory of Agricultural Insurance


  • Carl H. Nelson
  • Edna T. Loehman


The economic theory of contracts is applied to agricultural insurance to show that, given full information, Pareto-optimal insurance contracts are actuarially fair, provide full coverage, and differ for each individual. The information problems of moral hazard and adverse selection prevent Pareto optimality from being attained. Several "second-best" solutions to these problems are applied to agricultural insurance. It is shown that information collection and the application of contract design principles are "second-best" solutions which may achieve the benefits of insurance at less cost than the current practice of public subsidies.

Suggested Citation

  • Carl H. Nelson & Edna T. Loehman, 1987. "Further Toward a Theory of Agricultural Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(3), pages 523-531.
  • Handle: RePEc:oup:ajagec:v:69:y:1987:i:3:p:523-531.

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    Cited by:

    1. Phelippe-Guinvarc'h, Martial V. & Cordier, Jean E., 2006. "A private management strategy for the crop yield insurer: A theoretical approach and tests," Insurance: Mathematics and Economics, Elsevier, vol. 39(1), pages 35-46, August.
    2. Olivier Mahul, 1998. "Vers une redéfinition du rôle de l’assurance agricole dans la gestion des risques sur récoltes," Post-Print hal-01200910, HAL.
    3. Zhang, Li, 2008. "Three essays on agricultural risk and insurance," ISU General Staff Papers 2008010108000016857, Iowa State University, Department of Economics.
    4. Amponsah, Lawrence, 2016. "Modelling the effect of public investment on agricultural productivity in Ghana," MPRA Paper 70924, University Library of Munich, Germany.
    5. Bougherara, Douadia & Piet, Laurent, 2014. "The Impact of Farmers’ Risk Preferences on the Design of an Individual Yield Crop Insurance," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 183082, European Association of Agricultural Economists.
    6. Gong, Xuche & Feng, Hongli & Hennessy, David A., 2018. "Systemic Risk, Geography and Area Insurance," 2018 Annual Meeting, August 5-7, Washington, D.C. 274479, Agricultural and Applied Economics Association.
    7. Khojasteh, Khosrow, 1992. "Effects of farm characteristics and government disaster assistance on multiple-peril crop insurance purchases by Iowa crop farmers," ISU General Staff Papers 1992010108000010841, Iowa State University, Department of Economics.
    8. repec:bla:agecon:v:50:y:2019:i:1:p:15-26 is not listed on IDEAS
    9. repec:ags:jlaare:264070 is not listed on IDEAS
    10. repec:ags:earnsa:266488 is not listed on IDEAS

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