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EX POST MORAL HAZARD IN CROP INSURANCE: COSTLY STATE VERIFICATION OR FALSIFICATION?

Roderick M. Rejesus

No 19650, 2002 Annual meeting, July 28-31, Long Beach, CA from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: This article examines the extent to which actual crop insurance indemnification behavior conforms to the theoretical predictions of two ex post moral hazard models – costly state verification and costly state falsification. A nonparametric regression technique is used to estimate the crop insurance indemnification profile for non-irrigated cotton in Texas. The results suggest that indemnification behavior in crop insurance is more in line with the costly state falsification paradigm. Thus, crop insurers seem to indemnify based on the assumption that it is not easy to verify actual ex post loss magnitude and eliminate the asymmetric information held by the insured farmers.

Keywords: Risk and Uncertainty (search for similar items in EconPapers)
Date: 2002
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