Evidence of Adverse Selection in Crop Insurance Markets

This article analyzes farmers' choices of crop insurance contracts and offers empirical evidence of adverse selection in crop insurance markets. Farmers' risk characteristics, their level of income, and the cost of insurance significantly affect the choice of yield and revenue insurance pr...

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Bibliographic Details
Published in:The Journal of risk and insurance 2001-12, Vol.68 (4), p.685-708
Main Authors: Makki, Shiva S., Somwaru, Agapi
Format: Article
Language:English
Subjects:
Adverse selection
Agricultural industry
Agricultural production
Agricultural subsidies
Automobile insurance
Crop economics
Crop insurance
Crops
Equilibrium
Farmers
Farms
Health insurance
Insurance
Insurance coverage
Insurance industry
Insurance markets
Insurance premiums
Revenue
Risk assessment
Risk of loss
Statistical analysis
Studies
Willingness to pay
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Summary:This article analyzes farmers' choices of crop insurance contracts and offers empirical evidence of adverse selection in crop insurance markets. Farmers' risk characteristics, their level of income, and the cost of insurance significantly affect the choice of yield and revenue insurance products as well as the selection of alternative coverage levels. Empirical analysis indicates that high-risk farmers are more likely to select revenue insurance contracts and higher coverage levels. Results show that low-risk farmers are over-charged and high-risk farmers are undercharged for comparable insurance contracts, implying informational asymmetries in the crop insurance market
ISSN:0022-4367
1539-6975
DOI:10.2307/2691544