Picture-based insurance: is it sustainable? Effects on willingness to pay, adverse selection, and moral hazard

Berber Kramer, Francisco Ceballos, Matthew Krupoff, Mann S. Toor, Azad Mishra, Siddesh Karekar, Miguel Robles
project note
2017

This project note hence describes to what extent picture-based crop insurance is viable from an economic point of view, addressing the following questions: (1) Do farmers strategically reduce crop management efforts (that is, does PBI induce moral hazard) and is there evidence of tampering with pictures in order to receive pay-outs when they have PBI coverage? (2) What is farmers’ willingness to pay for PBI compared to willingness to pay for standard weather index-based insurance (WBI)? Is farmers’ demand for PBI strong enough to justify its higher costs? (3) To what extent do farmers se-lectively enroll plots that are more prone to damage? In other words, is PBI prone to adverse selection?