Effects of Insurance on Farmer Crop Abandonment

Empirical evidence for the existence of moral hazard in the U.S. crop insurance program has been inconclusive. Here, we seek empirical evidence of moral hazard in the U.S. crop insurance program, departing from the established empirical literature in two significant respects. First, we attempt to uncover evidence of moral hazard by examining the effects of crop insurance on post-planting crop abandonment decisions. Second, we expand to the scope of existing empirical studies by including regions and crops that have historically experienced high loss ratios under the Federal crop insurance program. Our results provide strong evidence that insurance participation encourages producers to abandon their crops during the growing season for corn in Central Plains and Southern Plains regions and for upland cotton in Southeast, Delta States and Southern Plains regions.