Federal Crop Insurance: The Need for Reform

42 Pages Posted: 31 May 2016

See all articles by Robert W. Klein

Robert W. Klein

Georgia State University

Gregory Krohm

University of Wisconsin - Madison - Department of Actuarial Science, Risk Management and Insurance; International Association of Industrial Accident Boards and Commission

Date Written: May 30, 2008

Abstract

Federal crop insurance is the largest federal property-casualty insurance program. Nominally, it is portrayed as a typical form of private property insurance. However, closer examination reveals that its structure departs significantly from conventional insurance principles and practices that are employed in private insurance markets. In reality, it is a greatly flawed and heavily subsidized wealth transfer program, costing taxpayers $3-$4 billion a year. Also, its flawed structure creates substantial adverse selection and moral hazard problems, encouraging farmers to make economically unsound investment and production choices with rippling effects for farm economies and the environment. Finally, the interaction of state regulation and the federal crop insurance program continues to raise issues that need to be resolved and could be diminished or eliminated if certain program reforms were implemented. In this paper, we critique the structural defects of the crop insurance program, identify the problems they create, and offer recommendations on how the program could be reformed to function more like a true insurance program based on sound economic principles and better coordination between state and federal governments.

Keywords: crop insurance, insurance regulation

JEL Classification: L51, Q14, H11

Suggested Citation

Klein, Robert Warren and Krohm, Gregory, Federal Crop Insurance: The Need for Reform (May 30, 2008). Available at SSRN: https://ssrn.com/abstract=2786680 or http://dx.doi.org/10.2139/ssrn.2786680

Robert Warren Klein (Contact Author)

Georgia State University ( email )

5387 Northchester Ct
Atlanta, GA GA 30338
United States
404-386-1591 (Phone)

Gregory Krohm

University of Wisconsin - Madison - Department of Actuarial Science, Risk Management and Insurance ( email )

Madison, WI
United States
(608) 265-4004 (Phone)

HOME PAGE: http://www.wisc.edu/directories/results.php?name=GREGORY%20KROHM&email=gkrohm@bus.wisc.edu

International Association of Industrial Accident Boards and Commission ( email )

Madison, WI
United States

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