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Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives

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  • Just, Richard E.
  • Calvin, Linda
  • Quiggin, John

Abstract

Adverse selection is often blamed for crop insurance indemnities exceeding premiums plus subsidies. However, nationwide empirical evidence has been lacking or based on inadequate county-level data. This article uses nationwide farm-level data on corn and soybeans to decompose incentives for participation in U.S. multiple peril crop insurance into a risk-aversion incentive (the conventional justification for insurance), an actuarial or subsidy incentive (reflecting government subsidization), and an asymmetric information incentive (which reflects farmers' information advantage). Results show that the risk-aversion incentive is small. Farmers participate in crop insurance primarily to receive the subsidy or because of adverse selection possibilities. Copyright 1999, Oxford University Press.
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Suggested Citation

  • Just, Richard E. & Calvin, Linda & Quiggin, John, 1993. "Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives," Working Papers 197809, University of Maryland, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:umdrwp:197809
    DOI: 10.22004/ag.econ.197809
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    References listed on IDEAS

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    Keywords

    Crop Production/Industries;

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