Submitted Article The New Standing Disaster Program: A SURE Invitation to Moral Hazard Behavior

individual farms that experience crop losses in excess of 50 % of their average pro-duction, whether or not those farms are located in regions affected by catastrophic events. This study shows that, because of this provision, the SURE program creates substantial incentives for moral hazard behaviors in many market-related situations. These incentives are especially severe when market prices equal or fall below prices at which farmers value commodity losses for federal crop insurance purposes. Key words: moral hazard, disaster aid, crop insurance. JEL Codes: D81, Q12, Q14, Q18. Agricultural subsidies are controversial. Many observers question why farmers need any subsidies at all, especially in times of atypically high commodity prices. If, for example, poverty alleviation is the goal, then why not use welfare programs to address the needs of farmers who are poor rather than allocating most of the funds to larger farms operated by relatively wealthy producers? However, if a government program allocates subsidies to all farmers, then ideally that program should not provide incentives for moral hazard behavior that wastes scarce resources.1 The new Supplemental Agricultural Disaster Assistance (SURE) program, created by section 12033 of the 2008 Farm Bill as an amendment to the 1994 Federal Crop Insurance Act, does not meet this criterion. The original intent of the SURE program was to provide producers with automatic disaster payments when the region in which they farm suffers from a catastrophic natural event that devastates their crops. As farmer