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          Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri >

Please use this identifier to cite or link to this item: http://purl.umn.edu/132523

Title: Risk Sharing and Incentives with Crop Insurance and External Equity Financing
Authors: Seo, Sangtaek
Leatham, David J.
Mitchell, Paul D.
Keywords: risk sharing
incentives
crop insurance
equity financing
principal agent model.
Issue Date: 2003
Abstract: Farmers have increasingly been procuring external equity financing through either written or verbal business arrangements. Passage of the Agricultural Risk Protection Act in 2000 has resulted in widespread adoption of crop insurance among farmers. Crop insurance changes farmers’ production decisions, so that investors providing external equity may want to adjust the equity financing contract to account for these changes. This paper uses a principal-agent model to determine optimal risk sharing and incentives under crop insurance and external equity financing. Results show that with the introduction of crop insurance, the investor’s optimal equity financing contract requires that the farmer bears more risk in order to have the incentive to work hard.
URI: http://purl.umn.edu/132523
Institution/Association: Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition >Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003, St. Louis, Missouri
Total Pages: 17
Collections:Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri

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