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| Islam, Zahirul; Hoy, Michael; Turvey, Calum G.. |
| In this paper we develop a theoretical model of input supply by agricultural producers who purchase crop insurance and so who may engage in moral hazard. We show, through simulations, that a combination of partial insurance coverage combined with a minimum standard for input use may reduce substantially the problems associated with moral hazard. Partial insurance coverage creates an incentive for the producer to increase his use of inputs since the cost of lower output is partially borne by the producer, an outcome which would not be present under full coverage insurance. Partial monitoring of inputs, in the form of a minimum requirement for input use, has a direct effect on the reduction of moral hazard. We show that, rather than being substitute... |
| Tipo: Working or Discussion Paper |
Palavras-chave: Risk and Uncertainty. |
| Ano: 1999 |
URL: http://purl.umn.edu/34127 |
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| Islam, Zahirul; Turvey, Calum G.; Hoy, Michael. |
| The main motivation for this paper is the recognition of the fact that asymmetric information is the form of moral hazard and adverse selection results in sizeable efficiency losses. These costs are passed back to producers in the form of excessively high premium rates and also passed back to the government via the crop insurance subsidy program. A secondary motivation stems from a recent debate in the literature regarding the specific effects of moral hazard on agricultural input use. Conventional wisdom suggests that moral hazard will induce producers to reduce input usage. A competing hypothesis has emerged which suggests that moral hazard may induce producers to increase their usage or risk increasing inputs. The main objective of this paper was to... |
| Tipo: Working or Discussion Paper |
Palavras-chave: Risk and Uncertainty. |
| Ano: 1999 |
URL: http://purl.umn.edu/34103 |
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