Moral Hazard in Agricultural Yield Insurance


  • Boyingzi Luo Central University of Finance and Economics



Moral hazard, Agricultural yield insurance, Miranda Decomposition.


In agricultural yield insurance practices, there are two main categories of insurance products which differed from the targeted insured yield, namely area-yield based insurance and individual-based insurance. A common knowledge is that individual-yield based insurance has more flexibility that could meet the real demand of insureds, while having much more severity of moral hazard and higher administration costs. Relatively, area-yield based insurance has lower risk of moral hazard, but obtaining bias, or so-called basis risk at the same time. In this paper, we use an improved modified Miranda Decomposition Model to establish a theoretical framework of farmers behaviors when assuming their goals are to maximize the expected rate of return in agricultural production process under both individual-yield and area-yield insurance. The results show that these two distinct arrangements may cause different motivation to farmers, seducing them act or not act in moral hazard manner.


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How to Cite

Luo, B. (2020). Moral Hazard in Agricultural Yield Insurance . Archives of Business Research, 8(1), 163–171.