Empirical Challenges for Estimating Moral Hazard Effects of Crop Insurance on Pesticide Use

The potential for moral hazard is an unforeseen outcome of achieving the dual agricultural policy goals of income stabilization and limited environmental impact. Here, we review key issues for identifying the moral hazard effects of crop insurance on pesticide use and include an empirical application that addresses both insurance endogeneity and quality adjustment of pesticides over time. Our results reveal no consistent linkage between insurance and pesticide use across four major crops. We discuss the differences in these effects across different specifications and crops and conclude by stressing that caution be used when looking to the academic literature for guidance on this key policy question.