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Reducing Moral Hazard Associated with Implied Warranties of Animal Health
Author(s) -
Centner Terence J.,
Wetzstein Michael E.
Publication year - 1987
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1241315
Subject(s) - damages , warranty , legislature , moral hazard , business , actuarial science , liability , statutory law , harm , legislative history , incentive , livestock , legislative intent , liability insurance , law and economics , insurance policy , public economics , economics , law , finance , political science , microeconomics , ecology , biology
Implied warranties convey information regarding animal health to livestock buyers. Statutory implied warranties also include insurance coverage for a warranty breach which removes buyers' incentive to mitigate possible damages when a warranty is breached. Nonmitigation of damages created the problem of moral hazard, which led livestock sellers to seek legislative exemptions abrogating implied warranties. A theoretical analysis of the possible inefficiencies associated with legislative exemptions adopted by twenty‐five states is provided and partial insurance is suggested as an alternative to the legislative shift in liability.