Crop Insurance, Moral Hazard, and Agricultural Chemical Use

This study examines the relationship between chemical input use and crop insurance purchase decisions for a sample of Kansas dryland wheat farmers. Recent research by Horowitz and Lichtenberg indicated that, contrary to conventional wisdom, farmers that purchased insurance tended to use relatively more chemical inputs than farmers who did not insure. In contrast, our results confirm the conventional view that moral hazard incentives lead insured farmers to use fewer chemical inputs. Implications for the joint determination of insurance and input use decisions and appropriate estimation techniques are discussed. Copyright 1996, Oxford University Press.