Abstract
AbstractPrevented planting provision in crop insurance protects producers from failure to plant attributable to natural causes. We determined the impact of this provision at various crop insurance coverage levels on prevented planting claims and ex post moral hazard. The moral hazard incentive in the prevented planting provision is stronger for corn than soybeans. Reducing the prevented planting coverage factor for corn could likely reduce moral hazard, but the degree of the reduction will likely depend on the revenue protection coverage level. Conversely, we found moral hazard is unlikely to occur for soybean production regardless of the revenue protection coverage level.
Highlights
IntroductionIncreases in prevented planting indemnity payments over the last two decades have triggered investigations into prevented planting claims (Rejesus, Escalante, and Lovell, 2005; Rejesus et al, 2003; U.S Department of Agriculture, Office of Inspector General [USDA-OIG], 2013)
Increases in prevented planting indemnity payments over the last two decades have triggered investigations into prevented planting claims (Rejesus, Escalante, and Lovell, 2005; Rejesus et al, 2003; U.S Department of Agriculture, Office of Inspector General [USDA-OIG], 2013). Rejesus et al (2003) and Rejesus, Escalante, and Lovell (2005) concluded the prevented planting provision was more vulnerable to fraudulent claims than other crop insurance provisions and plans
We find that corn production would remain profitable until around June 12; these profits would be lower than the profits from the prevented planting indemnity payment
Summary
Increases in prevented planting indemnity payments over the last two decades have triggered investigations into prevented planting claims (Rejesus, Escalante, and Lovell, 2005; Rejesus et al, 2003; U.S Department of Agriculture, Office of Inspector General [USDA-OIG], 2013). Under the current prevented planting provision, Revenue Protection (RP), Revenue Protection with the Harvest Price Exclusion, Yield Protection, and Area Risk Protection Insurance crop insurance policies provide producers with an indemnity payment if they are impeded from planting an insured crop by a designated final planting date or within any applicable late planting period because of natural causes (U.S Department of Agriculture, Federal Crop Insurance Corporation, 2015). The final planting date is the last day producers could plant the insured crop and still be eligible for the full coverage of
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