Cornhusker Economics

Nebraska: Asymmetric Information in Crop Insurance 

Increasingly agricultural policy has turned from direct counter-cyclical commodity programs toward social insurance and risk management programs. Congress attempted to entice producer participation in the crop insurance program by increasing premium subsidies and introduction of new crop insurance contracts through the Agricultural Reform Act of 1994 and the Agricultural Risk Protection Act of 2000. Higher subsidies and expanded contract options helped fuel an increase in insured acreage.  Insured acres increased from 100 million to 265 million between 1994 and 2009 (USDA-RMA Bulletin). Also, during this timeframe other undesired outcomes may have emerged. Subsidized and complex crop insurance programs may increase the likelihood that profit-maximizing producers can use information advantages to garner returns above what the government intends. The excess returns would result in increased costs to taxpayers and potentially inefficient reallocations of resources in agriculture.    Read More»