Political Economy of Crop Insurance Risk Subsidies under Imperfect Information
No hay miniatura disponible
Fecha
Autores
Título de la revista
ISSN de la revista
Título del volumen
Editor
Resumen
Descripción
We consider a political economy where government cares about risk-averse farmers’ loss of
income and yet incurs political cost if it provides monetary support to farmers. Government
evaluates three options: 1) ex-post disaster aid; 2) ex-ante insurance option with perfect
information; 3) ex-ante insurance with imperfect information (farmers are over-confident about
their risk). It is assumed that marginal political cost is high enough so that the possibility of
monetary support to farmers in the absence of economic loss is ruled out. In comparing 1) and
2), we find that government prefers farmers manage their risks through fairly priced insurance In
comparing 1) and 3), if the information problems prevent risk-averse farmers to take up full
insurance under actuarially fair rates, government prefers to subsidize farmers’ insurance ex-ante
rather than providing disaster aid ex-post (subject to political cost) for a wide range of parameter
values.