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Insurance, Moral Hazard, and Chemical Use in Agriculture

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  • John K. Horowitz
  • Erik Lichtenberg

Abstract

This paper examines how crop insurance affects corn farmers' fertilizer and pesticide use in the U.S. Midwest. Crop insurance might be expected to affect chemical use because of "moral hazard"; insured farmers may undertake riskier production than do uninsured farmers. Results suggest that insurance exerts considerable influence on corn farmers' chemical use decisions. Those purchasing insurance applied significantly more nitrogen per acre (19%), spent more on pesticides (21%), and treated more acreage with both herbicides and insecticides (7% and 63%) than did those not purchasing insurance. These results suggest that both fertilizer and pesticides may be risk-increasing inputs.

Suggested Citation

  • John K. Horowitz & Erik Lichtenberg, 1993. "Insurance, Moral Hazard, and Chemical Use in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 926-935.
  • Handle: RePEc:oup:ajagec:v:75:y:1993:i:4:p:926-935.
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    File URL: http://hdl.handle.net/10.2307/1243980
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