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The New Standing Disaster Program: A SURE Invitation to Moral Hazard Behavior
Author(s) -
Smith Vincent H.,
Watts Myles
Publication year - 2010
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/ppp003
Subject(s) - moral hazard , crop insurance , incentive , payment , commodity , business , value (mathematics) , production (economics) , actuarial science , agricultural economics , hazard , economics , agriculture , finance , microeconomics , geography , chemistry , archaeology , organic chemistry , machine learning , computer science
The new Supplemental Agricultural Disaster Assistance (SURE) program, established by the 2008 Farm Bill, mandates disaster payments for individual farms that experience crop losses in excess of 50% of their average production, whether or not those farms are located in regions affected by catastrophic events. This study shows that, because of this provision, the SURE program creates substantial incentives for moral hazard behaviors in many market‐related situations. These incentives are especially severe when market prices equal or fall below prices at which farmers value commodity losses for federal crop insurance purposes.