Many economists and policy analysts have conducted studies on crop insurance. Three research gaps are identified: i) moral hazard in prevented planting (PP), ii) choice of PP and planting a second crop, and iii) selecting margin protection in the Dairy Margin Protection Program (MPP-Dairy). The first essay analyzes the existence of moral hazard in PP. The PP provision is defined as the “failure to plant an insured crop by the final planting date due to adverse events”. If the farmer decides not to plant a crop, the farmer receives a PP indemnity. Late planting (LP) is an option for the farmer to plant a crop while maintaining crop insurance after the final planting date. Crop insurance may alter farmers’ behavior in selecting PP or LP and could increase the likelihood of PP claims even though farmers can choose LP. This study finds evidence that a farmer with higher insurance coverage tends to choose PP more often (moral hazard). Spatial panel models attest to the existence of moral hazard in PP empirically. If a farmer chooses PP, s/he receives the PP indemnity and may either leave the acreage unplanted or plant a second crop, e.g., soybean for corn. If the farmer plants a second crop after the PP claim, the farmer receives a 35% of PP payment. The current PP provision fails to provide farmers with an incentive to plant a second crop; 99.9% of PP claiming farmers do not plant a second crop. Adjusting PP indemnity payment may encourage farmers to plant a second crop. The second essay explores this question using a stochastic simulation and suggests to increase the PP payment by 10%-15%. The third essay investigates why Wisconsin dairy farmers purchase more supplementary protection than California farmers in a MPP-Dairy introduced in the 2014 Farm Bill. MPP-Dairy provides dairy producers with margin protection when the national dairy margin is below a farmer selected threshold. This study determines whether conditional probabilities regarding regional and national margins have a role in farmer’s decision-making to purchase supplementary coverages using Copula models. Results indicate that Wisconsin farmers have higher conditional probabilities and purchase more buy-up coverages.

This thesis examines a number of issues regarding the Mortensen-Pissarides search and matching model’s empirical performance. Chapter 1 documents the volatility puzzle with the Canadian data. The combined data from both Canada and the United States present an additional difficulty. Even if the unobserved value of leisure is allowed to be as high as required to fit the business cycle in the United States or in Canada, the model cannot reconcile the similar labor cycles with the large policy differences in the UI benefits and income taxes in the two countries when the value of leisure is assumed to be the same in both countries. Chapter 2 takes into account the realistic institutional features of the UI system and investigates the impacts of the UI benefits on the labor market outcomes. If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to an employment relationship, so it promotes job creation. If individuals are risk neutral, UI is fairly priced, and the UI system prevents moral-hazard unemployed workers, the generosity of UI has no effect on unemployment. Chapter 3 shows that the Mortensen-Pissarides search and matching model can be successfully parameterized to generate observed large cyclical fluctuations in unemployment and modest responses of unemployment to changes in the UI benefits. The key features behind this success are the endogenous eligibility for UI benefits and the heterogeneity of workers. With the linear utilities commonly assumed in the Mortensen-Pissarides model, a fully rated UI system designed to prevent moral hazard has no effect on unemployment. However, the UI system in the United States is neither fully rated nor able to prevent workers with low productivity from quitting their jobs or rejecting employment offers to collect benefits. As a result, an increase in UI generosity has a positive, but realistically small, effect on unemployment. This chapter answers the Costain and Reiter (2008) criticism with the Mortensen-Pissarides model.

This thesis examines a number of issues regarding the Mortensen-Pissarides search and matching model’s empirical performance. Chapter 1 documents the volatility puzzle with the Canadian data. The combined data from both Canada and the United States present an additional difficulty. Even if the unobserved value of leisure is allowed to be as high as required to fit the business cycle in the United States or in Canada, the model cannot reconcile the similar labor cycles with the large policy differences in the UI benefits and income taxes in the two countries when the value of leisure is assumed to be the same in both countries. Chapter 2 takes into account the realistic institutional features of the UI system and investigates the impacts of the UI benefits on the labor market outcomes. If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to an employment relationship, so it promotes job creation. If individuals are risk neutral, UI is fairly priced, and the UI system prevents moral-hazard unemployed workers, the generosity of UI has no effect on unemployment. Chapter 3 shows that the Mortensen-Pissarides search and matching model can be successfully parameterized to generate observed large cyclical fluctuations in unemployment and modest responses of unemployment to changes in the UI benefits. The key features behind this success are the endogenous eligibility for UI benefits and the heterogeneity of workers. With the linear utilities commonly assumed in the Mortensen-Pissarides model, a fully rated UI system designed to prevent moral hazard has no effect on unemployment. However, the UI system in the United States is neither fully rated nor able to prevent workers with low productivity from quitting their jobs or rejecting employment offers to collect benefits. As a result, an increase in UI generosity has a positive, but realistically small, effect on unemployment. This chapter answers the Costain and Reiter (2008) criticism with the Mortensen-Pissarides model.

This dissertation includes two essays on adverse selection and moral hazard problems in reinsurance markets. The first essay builds a competitive principal-agent model that considers adverse selection and moral hazard jointly, and characterizes graphically various forms of separating Nash equilibria. In the second essay, we use panel data on U.S. property liability reinsurance for the period 1995-2000 to test for the existence of adverse selection and moral hazard. We find that (1) adverse selection is present in private passenger auto liability reinsurance market and homeowners reinsurance market, but not in product liability reinsurance market; (2) residual moral hazard does not exist in all the three largest lines of reinsurance, but is present in overall reinsurance markets; and (3) moral hazard is present in the product liability reinsurance market, but not in the other two lines of reinsurance.

Agriculture is undergoing extreme change. The introduction of new generation agricultural products has generated an increased need for efficient and accurate product segregation across a number of Canadian agricultural sectors. In particular, monitoring, controlling and preventing commingling of various wheat grades is critical to continued agri-food safety and quality assurance in the Canadian grain handling system. The Canadian grain handling industry is a vast regional supply chain with many participants. Grading of grain for blending had historically been accomplished by the method of Kernel Visual Distinguishability (KVD). KVD allowed a trained grain grader to distinguish the class of a registered variety of wheat solely by visual inspection. While KVD enabled rapid, dependable, and low-cost segregation of wheat into functionally different classes or quality types, it also put constraints on the development of novel traits in wheat. To facilitate the introduction of new classes of wheat to enable additional export sales in new markets, the federal government announced that KVD was to be eliminated from all primary classes of wheat as of August 1, 2008. As an alternative, the Canadian Grain Commission has implemented a system called Variety Eligibility Declaration (VED) to replace KVD. As a system based on self-declaration, the VED system may create moral hazard for misrepresentation. This system is problematic in that incentives exist for farmers to misrepresent their grain. Similarly, primary elevators have an incentive to commingle wheat classes in a profitable manner. Clearly, the VED system will only work as desired for the grain industry when supported by a credible monitoring system. That is, to ensure the security of the wheat supply chain, sampling and testing at some specific critical points along the supply chain is needed. While the current technology allows the identification of visually indistinguishable grain varieties with enough precision for most modern segregation requirements, this technology is relatively slow and expensive. With the potential costs of monitoring VED through the current wheat supply chain, there is a fundamental tradeoff confronting grain handlers, and effective handling strategies will be needed to maintain historical wheat uniformity and consistency while keeping monitoring costs down. There are important operational issues to efficiently testing grain within the supply chain, including the choice of the optimal location to test and how intensively to test. The testing protocols for grain deliveries as well as maintaining effective responsiveness to information feedback among farmers will certainly become a strategic emphasis for wheat handlers in the future. In light of this, my research attempts to identify the risks, incentives and costs associated with a functional declaration system. This research tests a series of incentives designed to generate truthful behavior within the new policy environment. In this manner, I examine potential and easy to implement testing strategies designed to maintain integrity and efficiency in this agricultural supply chain. This study is developed in the first instance by using an analytic model to explore the economic incentives for motivating farmer’s risk control efforts and handlers’ optimal handling strategies with respect to testing cost, penalty level, contamination risks and risk control efforts. We solve for optimal behavior in the supply chain assuming cost minimization among the participants, under several simplifying assumptions. In reality, the Canadian grain supply chain is composed of heterogeneous, boundedly rational and dynamically interacting individuals, and none of these characteristics fit the standard optimization framework used to solve these problems. Given this complex agent behavior, the grain supply chain is characterized by a set of non-linear relationships between individual participants, coupled with out of equilibrium dynamics, meaning that analytic solutions will not always identify or validate the set of optimized strategies that would evolve in the real world. To account for this inherent complexity, I develop an agent-based (farmers and elevators) model to simulate behaviour in a more realistic but virtual grain supply chain. After characterizing the basic analytics of the problem, the grain supply chain participants are represented as autonomous economic agents with a certain level of programmed behavioral heterogeneity. The agents interact via a set of heuristics governing their actions and decisions. The operation of a major portion of the Canadian grain handling system is simulated in this manner, moving from the individual farm up through to the country elevator level. My simulation results suggest testing strategies to alleviate misrepresentation (moral hazard) in this supply chain are more efficient for society when they are flexible and can be easily adjusted to react to situational change within the supply chain. While the idea of using software agents for modeling and understanding the dynamics of the supply chain under consideration is somewhat novel, I consider this exercise a first step to a broader modeling representation of modern agricultural supply chains. The agent-based simulation methodology developed in my dissertation can be extended to other economic systems or chains in order to examine risk management and control costs. These include food safety and quality assurance network systems as well as natural-resource management systems. Furthermore, to my knowledge there are no existing studies that develop and compare both analytic and agent-based simulation approaches for this type of complex economic situation. In the dissertation, I conduct explicit comparisons between the analytic and agent-based simulation solutions where applicable. While the two approaches generated somewhat different solutions, in many respects they led to similar overall conclusions regarding this particular agricultural policy issue.

The literatures on venture financing mainly focus on proposing resolutions of entrepreneurial moral hazard. However, those researches ignore the fact that venture capital firms might behave opportunistically as well. Hence, this paper offers an effective mechanism to resolve the double moral hazard raised between venture capital firms and entrepreneurs. Three main conclusions are drawn as follow: It is shown that although convertible preferred stock could prevent venture capital firms from opportunistic behavior, it has poor efficiency in dealing with entrepreneurial moral hazard. On the other hand, staged financing, as opposed to convertible preferred stock, could effectively mitigate entrepreneurial moral hazard, but hardly avert from moral hazard raised from venture capital firms. In its conclusion, this study illustrates that both convertible preferred stock and staged financing act as an effective complementary mechanism for each other. Compared with any single approach, this joint mechanism could relatively resolve a certain extent of double moral hazard.

Univ., Diss--Bonn, 2007.

Univ., Diss.--Louvain-la-Neuve, 2006.

Broad swaths of humanity have become richer, healthier, and better educated. More of the world’s poorest have access to affordable credit, enabling them to invest in a better future. But what are the consequences? Does greater wealth or greater access to credit make people happier or more fulfilled? This dissertation presents essays on the relationship between wealth and well-being, the welfare effects of both debt and debt relief, and the kinds of normative analysis that help to inform good public policy. The first essay, The Methodology of Normative Policy Analysis (joint with Richard Zeckhauser), concerns disagreements in policy analysis and discourse. It provides a simple taxonomy of disagreement, identifying distinct categories within both the positive and values domains of normative policy analysis. Using disagreements in climate policy to illustrate, it demonstrates how illuminating the structure of disagreement helps to clarify the way forward. It concludes by suggesting a structure for policy analysis that can facilitate assessment, comparison, and debate by laying bare the most likely sources of disagreement. The second essay, Wealth and Well-being, tests a fundamental prediction of economic theory: that greater wealth causes greater well-being. It uses a natural experiment to estimate the causal effect of income on subjective well-being. Among a population of indebted farmers in rural India, the marginal effect of income on life satisfaction is found to be positive. However, the source of income appears to exert an important and independent effect. In this study the source is agricultural debt relief, which features a positive marginal effect but also a countervailing negative effect (perhaps due to stigma). The third essay, Moral Hindrance, argues that the total cost of default borne by low-income borrowers, including social, psychological, and other sanctions, is likely to be excessive, giving rise to sub-optimal borrower risk-taking and excessive borrower effort. I call this the moral hindrance problem, to distinguish it from the moral hazard problem often presumed by economists. The essay argues that policy should promote competition among lenders, encourage broader use of collateral, and allow interest rates to rise as necessary to meet borrower demand for varying loan conditions.

Conn., Yale Univ., Diss.--New Haven, 2005. / Kopie, ersch. im Verl. UMI, Ann Arbor, Mich.