Further toward a theory of agricultural insurance

The economic theory of contracts is applied to agricultural insurance to show that, given full information, Pareto-optimal insurance contracts are actuarially fair, provide full coverage, and differ for each individual. The information problems of moral hazard and adverse selection prevent Pareto op...

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Bibliographic Details
Published in:American journal of agricultural economics 1987-08, Vol.69 (3), p.523-531
Main Authors: Nelson, Carl H., Loehman, Edna T.
Format: Article
Language:English
Subjects:
adverse selection
Agricultural insurance
Agriculture
ASSURANCE
Crop insurance
DEVELOPING COUNTRIES
ESTRUCTURA SOCIAL
Farmers
FONCTION DE PRODUCTION
FUNCIONES DE LA PRODUCCION
Health insurance
Homeowners insurance
INSURANCE
Insurance coverage
Insurance premiums
Insurance providers
moral hazard
PAISES EN DESARROLLO
PAYS EN DEVELOPPEMENT
principal-agent theory
PRODUCTION FUNCTIONS
RIESGO
RISK
Risk aversion
RISQUE
SEGUROS
SOCIAL STRUCTURE
State of nature
STRUCTURE SOCIALE
SUBSIDIES
SUBSIDIOS
SUBVENTION
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Summary:The economic theory of contracts is applied to agricultural insurance to show that, given full information, Pareto-optimal insurance contracts are actuarially fair, provide full coverage, and differ for each individual. The information problems of moral hazard and adverse selection prevent Pareto optimality from being attained. Several “second-best” solutions to these problems are applied to agricultural insurance. It is shown that information collection and the application of contract design principles are “second-best” solutions which may achieve the benefits of insurance at less cost than the current practice of public subsidies.
ISSN:0002-9092
1467-8276
DOI:10.2307/1241688