Testing for Moral Hazard and Ranking Farms by Their Inclination to Collect Crop Damage Compensations

Sami Myyrä and Kyosti Pietola

No 114632, 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland from European Association of Agricultural Economists

Abstract: This paper tests for the extent of moral hazard problem within a Crop Damage Compensation (CDC) program that is similar to traditional multi peril crop insurances but is publicly funded and openly accessible for all farmers in Finland. We further estimate the potential of using the observed farmer and farm characteristics in ranking and classifying farms according to their incidence towards losses when they are protected. The data are the claimed and granted indemnity payments for each farm over the fifteen year period of 1995-2009. These data are complemented by data on total farm population in 2005. The data suggest that most of the farmers (60%) have not made any claims in the CDC program over the 15 year period. Those farms that claimed compensation did so typically either once or twice within the 15 year period. Nevertheless, a substantial number of farmers have claimed and also granted indemnity payments more regularly than can be justified by the exogenous (aggregate level) yield distributions. Based on the logit models, farmers and farms with certain observed characteristics are more inclined to the losses than the others. In general presence of animals declines the probability of crop damage. However, the existence of different animals on the farm classifies the farms by their inclination to collect crop damage compensations. In addition, the fixed municipality effects are significant indicating that the persons in charge for appraising the losses implement different standards

Keywords: Farm Management; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 12
Date: 2011-09-02
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:eaae11:114632

DOI: 10.22004/ag.econ.114632

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