Rate Making for Farm-Level Crop Insurance: Implications for Adverse Selection

Jerry R. Skees and Michael Reed

American Journal of Agricultural Economics, 1986, vol. 68, issue 3, 653-659

Abstract: This research identifies two problems in the new Federal Crop Insurance that may cause adverse selection: (a) the relationship between rate making and expected yields for individual farmers, and (b) the bias introduced in coverage protection when trends are not used to establish expected yields. A theoretical investigation using the normality assumption demonstrates the potential severity of these problems, and empirical results from farm-level data lend further support. As crop insurance changes to individualized methods of protection, these issues will be particularly important for developing rates.

Date: 1986
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:68:y:1986:i:3:p:653-659.

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