The Effects of Transitional Yields on Adverse Selection in Crop Insurance

Abstract

Transitional yields based on county average can be used by producers as the basis to obtain crop insurance on fields that have not previously produced the crop. Using field-level crop insurance contract data for several crops in five different growing regions we examine the impact of this asymmetric information on adverse selection. Our results indicate that adverse selection does exist from the use of transitional yields and that it is crop specific but not land-quality specific.adverse selection, crop insurance, transitional yields, Risk and Uncertainty, Q18,