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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.

Suggested Citation

  • Makki, Shiva S. & Somwaru, Agapi, 2002. "Asymmetric Information In Cotton Insurance Markets: Evidence From Texas," 2002 Annual meeting, July 28-31, Long Beach, CA 19827, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea02:19827
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    File URL: http://purl.umn.edu/19827
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    References listed on IDEAS

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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. Richard E. Just & Quinn Weninger, 1999. "Are Crop Yields Normally Distributed?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 287-304.
    3. Gourieroux,Christian & Monfort,Alain, 1995. "Statistics and Econometric Models," Cambridge Books, Cambridge University Press, number 9780521471626, May.
    4. 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.
    5. 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.
    6. G. Dionne & C. Gouriéroux & C. Vanasse, 1998. "Evidence of adverse selection in automobile insurance markets," THEMA Working Papers 98-22, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    7. 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.
    8. Makki, Shiva S. & Somwaru, Agapi, 2001. "Asymmetric Information in the Market for Yield and Revenue Insurance," Technical Bulletins 184331, United States Department of Agriculture, Economic Research Service.
    9. 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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    Keywords

    Risk and Uncertainty;

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