No abstract

This article analyzes farmers' choices of crop insurance contracts and offers empirical evidence of adverse selection in crop insurance markets. Farmers' risk characteristics, their level of income, and the cost of insurance significantly affect the choice of yield and revenue insurance products as well as the selection of alternative coverage levels. Empirical analysis indicates that high-risk farmers are more likely to select revenue insurance contracts and higher coverage levels. Results show that low-risk farmers are overcharged and high-risk farmers are undercharged for comparable insurance contracts, implying informational asymmetries in the crop insurance market.

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Domestic and international linkages in speculative stockholdings and trade of wheat are analyzed using a dynamic rational expectations model of the world wheat market dominated by the U.S. and the EU. The results demonstrate the importance of endogenizing both storage and trade in studying commodity markets and suggest that past government stockholdings have not followed efficient market outcomes. Results indicate that elimination of the Export Enhancement Program by the U.S. and of export restitution payments by the EU are unlikely to have a major impact on wheat exports from the two regions but will save millions of tax dollars in both regions. Copyright 1996, Oxford University Press.