THEPOUTICALECONOMY OF A CROP INSURANCE EXPERIMENT

A new crop insurance alternative will be available for eight major crops in 1994. This paper provides background on the development and potential for the new Group Risk Plan (GRP). The policy issues surrounding the Federal Crop Insurance Program are reviewed with an emphasis on the microlevel problems. Recognition of the micro-level problems of adverse selection and moral hazard led to the development of a pilot test of GRP in 1993. Limited Federal funding and the political demands for improving the actuarial performance of the Federal Crop Insurance Program led to the rapid expansion of GRP for crop year 1994. ideas for using GRP to improve the mixture of government and private initiatives to assist U.S. farmers in managing risk are introduced.