Date of this Version
Cornhusker Economics, September 1, 2021
The Federal Crop Insurance Corporation provides one of the most widely adopted risk mitigation tools used by crop producers across the United States. In 2018,
over 90% of corn and soybean acres were insured in most of the Great Plains and Midwestern United States (Farm Bureau, 2019). As with all insurance, there are questions of whether moral hazard behavior occurs with insurance enrollment. In economics, moral hazard refers to cases where someone makes riskier decisions when he or she is protected from the full cost of doing so. For example, someone
with fire insurance on their home may be less careful about checking and replacing smoke alarms than someone without fire insurance. With crop insurance, moral hazard occurs if a producer makes riskier operating decisions be-
cause of the loss protection provided by insurance.