Screening ability of private insurers in the federal crop insurance program
ISSN: 0002-1466
Article publication date: 10 September 2018
Issue publication date: 14 January 2019
Abstract
Purpose
The purpose of this paper is to scrutinize the structure of the federal crop insurance program and test whether participating private insurers screen insurance buyers better than the federal agency.
Design/methodology/approach
This paper regresses the claim payout on the risk share of private insurers in insurance pools and other relevant variables. The claim payout should be negatively related with the private insurers’ risk share if private insurers screen insurance buyers better than the federal agency.
Findings
The payout rates are significantly lower for reinsurance funds with higher risk shares of AIPs, and the relationship between the two variables is not affected much by the aggregate yield (similar relationship in good crop years and bad crop years).
Practical implications
The federal government could improve the effectiveness and the efficiency of the crop insurance program by restructuring its delivery system.
Originality/value
The novel contributions of this paper include estimating the economic significance of private insurers’ screening advantage and showing that the economic significance is similar in good crop years and bad crop years.
Keywords
Acknowledgements
The author thanks Christopher Biolsi, the editor, Calum Turvey, and an anonymous referee for helpful comments and suggestions.
Citation
Park, S. (2019), "Screening ability of private insurers in the federal crop insurance program", Agricultural Finance Review, Vol. 79 No. 1, pp. 107-118. https://doi.org/10.1108/AFR-06-2018-0053
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited