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Ex‐post moral hazard in prevented planting

Taehoo Kim and Man‐Keun Kim
Authors registered in the RePEc Author Service: Man-Keun Kim

Agricultural Economics, 2018, vol. 49, issue 6, 671-680

Abstract: This article analyzes the existence of moral hazard in prevented planting (PP) in the United States. The PP provision is defined as the “failure to plant an insured crop by the final planting date due to adverse events.” If the farmer decides not to plant a crop, the farmer receives a PP indemnity. Late planting (LP) is an option for farmers to plant a crop while maintaining crop insurance after the final planting date. Crop insurance may alter farmers’ behavior in selecting PP or LP and could increase the likelihood of PP claims even though farmers can choose LP. This study finds evidence that a farmer with higher insurance coverage tends to choose PP more often (ex‐post moral hazard). Spatial panel models attest to the existence of the ex‐post moral hazard in PP empirically. Empirical results show that the PP ratio has a positive relationship with insurance coverage in the case of corn production.

Date: 2018
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