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The SURE Program: An Investigation of Moral Hazard Opportunities and Adverse Selection Effects

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

Abstract

The Supplemental Revenue Assistance Payments (SURE) program, introduced in the 2008 Farm Bill, provides disaster aid payments to producers in counties eligible for disaster payments and individual producers with crop production losses that exceed 50% of their expected yields. We show that the program’s "rules of the game" create moral hazard and adverse selection incentives. Then, we empirically analyze possible moral hazard and adverse selection behavior in response to the SURE program by corn, soybean, and wheat producers. Results suggest that recent increases in crop insurance participation may be due to increased moral hazard and adverse selection incentives.

Suggested Citation

  • Bekkerman, Anton & Smith, Vincent H. & Watts, Myles J., 2012. "The SURE Program: An Investigation of Moral Hazard Opportunities and Adverse Selection Effects," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124178, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea12:124178
    DOI: 10.22004/ag.econ.124178
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    References listed on IDEAS

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    1. Vincent H. Smith & Myles Watts, 2010. "The New Standing Disaster Program: A SURE Invitation to Moral Hazard Behavior," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(1), pages 154-169.
    2. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1997. "An Expected-Indemnity Approach to the Measurement of Moral Hazard in Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 216-226.
    3. James Vercammen & G. Cornelis van Kooten, 1994. "Moral Hazard Cycles in Individual-Coverage Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(2), pages 250-261.
    4. Bruce A. Babcock & David A. Hennessy, 1996. "Input Demand under Yield and Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 416-427.
    5. Richard E. Just & Linda Calvin & John Quiggin, 1999. "Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 834-849.
    6. Vincent H. Smith & Barry K. Goodwin, 1996. "Crop Insurance, Moral Hazard, and Agricultural Chemical Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 428-438.
    7. Vincent H. Smith & Myles Watts, 2010. "The New Standing Disaster Program: A SURE Invitation to Moral Hazard Behavior," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(1), pages 154-169.
    8. Vincent H. Smith & Alan E. Baquet, 1996. "The Demand for Multiple Peril Crop Insurance: Evidence from Montana Wheat Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 189-201.
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