Estimating the Extent of Moral Hazard in Crop Insurance Using Administrative Data

摘要

The asymmetric information problems of adverse selection and moral hazard can cause insurance markets to fail. Adverse selection occurs when those seeking insurance know more than insurers do about their risks. Agents facing greater risks are more likely to insure at average prices, causing those facing less risk to be priced out of the market. Moral hazard refers to the effect insurance contracts may have on the insured's hidden actions. When bad outcomes are indemnified, the insured may have less incentive to prevent these outcomes from happening. Insurers, understanding agents' incentives, may be less likely to provide insurance, and the private market for insurance can break down.