On the Revelation of Private Information in the U.S. Crop Insurance Program

Abstract

The crop insurance program is a prominent facet of U.S. farm policy. The participation of private insurance companies as intermediaries is justified on the basis of efficiency gains. These gains may arise from either decreased transaction costs through better established delivery channels and/or the revelation of private information. We find empirical evidence suggesting that private information is revealed by insurance companies via their reinsurance decisions. However, our results also suggest that such information may not be incorporated into subsequent premium rates by the government thereby calling into question the use of insurance companies as intermediaries.