Agricultural insurance in Ecuador: Evidence of asymmetric information

The agricultural insurance implemented in Ecuador since 2010 is a state subsidized insurance system, which allows small and medium-sized farmers to contract protection policies against losses of their productions, caused mainly by climatic and biological events, or physical damages. Based on the positive correlation test between the insurance coverage and the probability of the accident, the investigation shows the asymmetry of information in the Ecuadorian agricultural insurance. Positive correlation was estimated, both with linear models and with the Probit model. Cross-sectional data were used in the period 2010 to 2013, data pool and panel data.  The results suggest that the insurance system implemented in Ecuador is inefficient. It is therefore recommended that policy makers consider offering other forms of insurance, adopting modalities based on climatic indexes or productivity indexes, which, by saving operating costs, would allow expanding coverage and reaching the groups of farmers most vulnerable to risks. Key words: Asymmetric information, agricultural insurance, moral hazard, adverse selection, small and medium agricultural producers, Ecuador.