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Rate Making for Farm-Level Crop Insurance: Implications for Adverse Selection

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  • Jerry R. Skees
  • Michael R. Reed

Abstract

This research identifies two problems in the new Federal Crop Insurance that may cause adverse selection: (a) the relationship between rate making and expected yields for individual farmers, and (b) the bias introduced in coverage protection when trends are not used to establish expected yields. A theoretical investigation using the normality assumption demonstrates the potential severity of these problems, and empirical results from farm-level data lend further support. As crop insurance changes to individualized methods of protection, these issues will be particularly important for developing rates.

Suggested Citation

  • Jerry R. Skees & Michael R. Reed, 1986. "Rate Making for Farm-Level Crop Insurance: Implications for Adverse Selection," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(3), pages 653-659.
    • Handle: RePEc:oup:ajagec:v:68:y:1986:i:3:p:653-659.
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    File URL: http://hdl.handle.net/10.2307/1241549
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