Investigators at University of Nebraska Detail Findings in Crop Insurance (The Potential for Moral Hazard Behavior In Irrigation Decisions Under Crop Insurance): Agriculture – Crop Insurance

2021 SEP 28 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Investigators discuss new findings in Agriculture - Crop Insurance. According to news reporting originating in Lincoln, Nebraska, by NewsRx journalists, research stated, “The design of federal crop insurance has attracted the interest and attention of many economists and policymakers in the United States. Moral hazard is a frequently cited concern, as insurance may reduce the incentive for farmers to manage properly their agricultural operation.”

Funders for this research include USDA NIFA Hatch project, Daugherty Water for Food Global Institute at the University of Nebraska.

The news reporters obtained a quote from the research from the University of Nebraska, “Moral hazard could play a role in irrigation decisions by incentivizing a farmer to choose a riskier irrigation management strategy, potentially affecting the long-term sustainability of water resources. We use numerical simulation to determine if insurance coverage affects incentives on seasonal irrigation use. Results show that the potential for moral hazard at current costs and policy parameters is low, but that there is potential for moral hazard behavior when the cost of irrigation is high. Hence, conservation policies that increase the cost of irrigation cost (e.g., a water tax) may amplify the potential for moral hazard. In most cases, crop insurance provides a secondary effect that reduces irrigation use in addition to the direct water tax effect, although this reduction comes at increased taxpayer expense. However, it is possible that irrigation use increases under crop insurance.”

According to the news reporters, the research concluded: “Therefore, there is a need for the explicit consideration of the unintended side effects of crop insurance on farmers’ irrigation water use decisions, particularly in regions experiencing water scarcity and rising marginal costs of irrigation.”

This research has been peer-reviewed.

For more information on this research see: The Potential for Moral Hazard Behavior In Irrigation Decisions Under Crop Insurance. Agricultural Economics, 2021. Agricultural Economics can be contacted at: Wiley, 111 River St, Hoboken 07030-5774, NJ, USA. (Wiley-Blackwell - http://www.wiley.com/; Agricultural Economics - http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1574-0862)

Our news correspondents report that additional information may be obtained by contacting Karina Schoengold, University of Nebraska, Dept. of Agricultural Economics, Lincoln, NE 68588, United States. Additional authors for this research include Paloch Suchato, Taro Mieno and Timothy Foster.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1111/agec.12676. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

(Our reports deliver fact-based news of research and discoveries from around the world.)