Evaluating the Effects of Asymmetric Information in a Model of Crop Insurance

Asymmetric information in the form of moral hazard and adverse selection can result in sizeable efficiency losses and program costs for government provided crop insurance plans. We present a methodology and illustrative simulations to show how these two types of information problems interact in way to create program costs for the providers of crop insurance. Our methodology allows us to ascertain the relative contributions to program costs of these two types of phenomenona, which is critical for improving the design of such insurance plans at least possible cost as well as for studying general efficiency considerations.