Moral hazard in crop and livestock insurance

The role of agricultural production in a global economy has grown significantly because of rapid population growth. However, it is also inherently risky, subject to unpredictable events, such as drought, extreme weather conditions, floods, frosts, pests, and market volatility. In order to mitigate these risks, producers frequently obtain some protection by purchasing crop and livestock insurance. Although insurance can provide basic protection, it can also introduce complex behavioral dynamics. The phenomena of moral hazard and adverse selection emerge because of asymmetric information. In this paper, we analyze moral hazard in crop and livestock insurance using a unique dataset of administrative records in Türkiye on all insured producers over the period 2006-2024. We find a risk of moral hazard when farmers are covered by any type of agricultural insurance. This means that farmers do not take the necessary precautions to protect their crops, leading to greater losses.