Estimating the Extent of Moral Hazard in Crop Insurance Using Administrative Data*

This paper uses a rich data set comprised of all federally subsidized crop insurance contracts from 1989 to 2002 to estimate the incidence of moral hazard for maize, soyabeans and wheat in Iowa, Texas, and North Dakota, USA. The rich data set and a quasi-experimental approach provide new information about this policy issue. Results indicate some evidence of moral hazard in Texas, particularly for wheat and soyabeans. Otherwise, the study finds little evidence of moral hazard affecting average yield or yield variability.