WEATHER-BASED ADVERSE SELECTION AND THE U.S. CROP INSURANCE PROGRAM: THE PRIVATE INSURANCE COMPANY PERSPECTIVE

Surprisingly, investigations of adverse selection have focused only on farmers. Conversely, this article investigates if insurance companies, not farmers, can generate excess rents from adverse selection activities. Currently political forces fashioning crop insurance as the cornerstone of U.S. agricultural policy make our analysis particularly topical. Focusing on El Nino/La Nina and winter wheat in Texas, we simulate out-of-sample reinsurance decisions during the 1978 through 1997 crop years while reflecting the realities imposed by the risk-sharing arrangement between the insurance companies and the federal government. The simulations indicate that economically and statistically significant excess rents may be garnered by insurance companies through weather-based adverse selection.


Issue Date:
2000-12
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/30907
Published in:
Journal of Agricultural and Resource Economics, Volume 25, Number 2
Page range:
386-410
Total Pages:
25




 Record created 2017-04-01, last modified 2017-08-24

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