Assessing Adverse Selection in Crop Insurance Markets: An Application of Parametric and Nonparametric Methods

This paper investigates adverse selection in crop insurance markets using both parametric and nonparametric methods. Our results reject the conditional independence of the choice of insurance contracts and risk of loss, implying the presence of informational asymmetries between insurers and insureds in the markets. Results also show that actual premium rates are significantly different from both pure and fair premium rates. Our findings provide useful insights into asymmetric information problems and methods to assess the risk of loss in crop insurance markets.