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Moral Hazard in Prevented Planting and Late Planting

Author

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  • Kim, Taehoo
  • Kim, Man-Keun

Abstract

This study examines the existence of moral hazard inherent in the choices of prevented planting (PP) and late planting (LP). The PP provision is defined as the “failure to plant an insured crop by the final planting date due to adverse events” such as excess moisture or drought. If the farmer decides not to plant the crop, (after appraised by an agency) the farmer receives a PP indemnity. LP is an option for the farmer to plant the crop and still maintain the crop insurance when the farmer fails to plant crop by the final planting date. However, by choosing LP option, the farmer has to lower the insurance coverage level depending on the LP date due to potential yield loss. Crop insurance may alter farmers’ decision choices in production in making the selection of PP or LP. In other words, crop insurance can increase the likelihood of PP claims even though farmers can choose LP. In particular, this paper seeks to find evidence that the farmer with higher insurance coverage would tend to choose PP statistically more often. In this case moral hazard would then be observed.

Suggested Citation

  • Kim, Taehoo & Kim, Man-Keun, 2015. "Moral Hazard in Prevented Planting and Late Planting," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205117, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205117
    DOI: 10.22004/ag.econ.205117
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    File URL: https://ageconsearch.umn.edu/record/205117/files/Prevented%20Planting%20and%20Moral%20Hazard_AAEA2015_up.pdf
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    Cited by:

    1. Taehoo Kim & Man‐Keun Kim, 2018. "Ex‐post moral hazard in prevented planting," Agricultural Economics, International Association of Agricultural Economists, vol. 49(6), pages 671-680, November.

    More about this item

    Keywords

    Agricultural and Food Policy; Farm Management; Risk and Uncertainty;
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