SURE Impact? An Empirical Investigation of Moral Hazard and Adverse Selection Behavior

Bekkerman, Anton; Smith, Vincent H.; Watts, Myles J.

SURE Impact? An Empirical Investigation of Moral Hazard and Adverse Selection Behavior

Autores

Bekkerman, Anton

Smith, Vincent H.

Watts, Myles J.

Descripción

The Supplemental Revenue Assistance Payments (SURE) program, enacted under the 2008 Farm Bill, is intended to provide indemnity payments to producers whose crop losses exceed 50% of their historical average yields. However, indemnification does not require that the farm is located in a region designated a disaster relief area -- a provision that can create significant moral hazard incentives. This study is the first to perform an empirical analysis of possible moral hazard behavior in corn, soybean, and wheat markets in response to the SURE program. Results suggest that an increase in crop insurance demand after the enactment of SURE may be due to the program's moral hazard incentives.