Market equilibrium of the agricultural product target price insurance and its moral hazard premium

Abstract

In the study, an expected revenue model was built for the farmers and insurance institutes in China, with the aim of researching the realization conditions of the target price insurance market equilibrium; analysing the reasons and consequences of the moral hazards; obtaining a paradox and elaborating the reason; measuring the moral hazard premium and researching positions, as well as the role of government in the target price premium; and also discussing the relationship between the target price and the cost price. The conclusions found were that the market risk was the major risk in agriculture; the target price insurance implementation relies on the government subsidy, which shall be equivalent to the sum of the farmers' moral hazard premium and social costs; the moral hazard premium has a negative externality; the insurance companies are also the beneficiaries of the farmers' moral hazard; and the best target price should be smaller than the total cost price of the agricultural products.

Keywords

• target price
• agricultural insurance
• moral hazard premium
• perspective of institutional economics