A Cost Function Analysis of Crop Insurance Moral Hazard and Agricultural Chemical Use
This paper employs a cost function analysis method to investigate the existence of moral hazard in cotton buy-up insurance. The trans-log cost function estimates of the own-price elasticity of fertilizer, herbicide, and insecticide is -0.222, -0.143, and -0.121, respectively for Mississippi cotton production. Our results found statistically significant relationship between per acre direct cost and cotton buy-up insurance for year 2001 and 2005 in Mississippi. Our results also indicate that moral hazard can either decrease or increase agricultural input usage depending specific production condition in an individual year. But in general the results support effects smaller than anecdotal evidence would suggest.
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- Babcock, Bruce A. & Hennessy, David A., 1996.
"Input Demand Under Yield and Revenue Insurance,"
Staff General Research Papers Archive
794, Iowa State University, Department of Economics.
- 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.
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- Mark V. Pauly, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 44-62.
- Michael J. Roberts & Nigel Key & Erik O'Donoghue, 2006. "Estimating the Extent of Moral Hazard in Crop Insurance Using Administrative Data ," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(3), pages 381-390.
- Roderick M. Rejesus & Keith H. Coble & Thomas O. Knight & Yufei Jin, 2006. "Developing Experience-Based Premium Rate Discounts in Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 409-419.
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