The New Standing Disaster Program: A SURE Invitation to Moral Hazard Behavior

Vincent H. Smith and Myles Watts

Applied Economic Perspectives and Policy, 2010, vol. 32, issue 1, 154-169

Abstract: The new Supplemental Agricultural Disaster Assistance (SURE) program, established by the 2010 Farm Bill, mandates disaster payments for individual farms that experience crop losses in excess of 50% of their average production, whether or not those farms are located in regions affected by catastrophic events. This study shows that, because of this provision, the SURE program creates substantial incentives for moral hazard behaviors in many market-related situations. These incentives are especially severe when market prices equal or fall below prices at which farmers value commodity losses for federal crop insurance purposes. Copyright 2010, Oxford University Press.

Date: 2010
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