Moral Hazard in Prevented Planting and Late Planting

Taehoo Kim and Man-Keun Kim

No 205117, 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California from Agricultural and Applied Economics Association

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.

Keywords: Agricultural and Food Policy; Farm Management; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 19
Date: 2015-07
New Economics Papers: this item is included in nep-agr and nep-ias
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea15:205117

DOI: 10.22004/ag.econ.205117

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