Screening ability of private insurers in the federal crop insurance program

Sangkyun Park

Agricultural Finance Review, 2018, vol. 79, issue 1, 107-118

Abstract: Purpose - The purpose of this paper is to scrutinize the structure of the federal crop insurance program and test whether participating private insurers screen insurance buyers better than the federal agency. Design/methodology/approach - This paper regresses the claim payout on the risk share of private insurers in insurance pools and other relevant variables. The claim payout should be negatively related with the private insurers’ risk share if private insurers screen insurance buyers better than the federal agency. Findings - The payout rates are significantly lower for reinsurance funds with higher risk shares of AIPs, and the relationship between the two variables is not affected much by the aggregate yield (similar relationship in good crop years and bad crop years). Practical implications - The federal government could improve the effectiveness and the efficiency of the crop insurance program by restructuring its delivery system. Originality/value - The novel contributions of this paper include estimating the economic significance of private insurers’ screening advantage and showing that the economic significance is similar in good crop years and bad crop years.

Keywords: Crop insurance; Private information; Public; private partnership; Asymmetric information; Q14; G22; H81; D82 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:afrpps:afr-06-2018-0053

DOI: 10.1108/AFR-06-2018-0053

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