Insurance, moral hazard and chemical use in agriculture

This paper examines how crop insurance affects corn farmers ' fertilizer and pesticide use in the U.S. Midwest. Crop insurance might be expected to affect chemical use because of "moral hazard"; insured farmers may undertake riskier production than do uninsured farmers. Results suggest that insurance exerts considerable influence on corn farmers ' chemical use decisions. Those purchasing insurance applied significantly more nitrogen per acre (19%), spent more on pesticides (21%), and treated more acreage with both herbicides and insecticides (7 % and 63%) than did those not purchasing insurance. These results suggest that both fertilizer and pesticides may be risk-increasing inputs. Key words: crop insurance, fertilizer use, moral hazard, pesticide use, risk. Deteriorating quality of the rural environment and agricultural resource base has become a growing source of concern in the United States. Environmental problems include leaching of ni-trate and pesticides into groundwater, surface water pollution from soil erosion and nutrient