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Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition >
Proceedings: 2003 Regional Committee NCT-194, October 6-7, 2003; Kansas City, Missouri >
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|Title: ||Risk Sharing and Incentives with Crop Insurance and External Equity Financing|
|Authors: ||Seo, Sangtaek|
Leatham, David J.
Mitchell, Paul D.
|Keywords: ||risk sharing|
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.|
|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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