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Insurability and Moral Hazard in Agricultural Insurance Markets
Author(s) -
Chambers Robert G.
Publication year - 1989
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 - 10.2307/1242016
Subject(s) - indemnity , moral hazard , morale hazard , actuarial science , insurability , incentive , pareto principle , insurance policy , casualty insurance , auto insurance risk selection , economics , risk aversion (psychology) , business , microeconomics , general insurance , expected utility hypothesis , financial economics , income protection insurance , operations management
Pareto‐optimal and constrained Pareto‐optimal all‐risk insurance contracts are studied. Conditions required for emergence of competitive insurance markets are isolated and discussed. Full insurance contracts are shown to be dominated by contracts involving coinsurance and deductibles if insurers are pseudo‐risk averse. The effect of moral hazard on all‐risk agricultural insurance indemnity schedules is examined. Results for indemnity schedules under moral hazard and constant absolute risk aversion show that providing farmers with the incentives to take appropriate actions may imply lower deductibles in the presence of moral hazard than in the absence of moral hazard.