Singerman, Ariel; Hart, Chad E.; Lence, Sergio H.

Journal of Agricultural and Resource Economics Vol. 37 no. 3 (December 2012): 415-434.

A framework is developed to examine organic crop insurance established by the Risk ManagementAgency (RMA). Given that the RMA links organic and conventional crop prices, the modelis calibrated to reflect both markets to illustrate the impacts that pricing has on insurancecoverage. Findings indicate that at the 75% coverage level, the RMA’s fixed-price factor impliesan effective coverage ranging from 43% to 105% depending on the ratio of planting-time organicto conventional market prices. Results suggest the RMA’s program is likely to induce adverseselection because the nominal coverage level is likely to deviate substantially from the effectivecoverage.

JEL Classification: Q12, Q14

Keywords: adverse selection, crop insurance, organic agriculture