shortcomings for crop insurance
One of the shortcomings mentioned in wiki for government acting in partnership with the private market for crop insurance is: it encourages over-production. I cannot figure out how this encourages over-production.
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One of the shortcomings mentioned in wiki for government acting in partnership with the private market for crop insurance is: it encourages over-production. I cannot figure out how this encourages over-production.
Comments
The government subsidizes the losses and this encourages over-production.
The wiki article only mentioned low yield and low price coverage and i don't understand how these 2 promotes over-production. My understanding is that over-production is encouraged only if the government will pay for the remaining crops that cannot be sold out due to low demand (whatever reason) from the market because over-production is talking excess amount of crops. Or are there other coverages?
This is "over-production" in relation to risk exposure. Premium will be based on expected production. But premium is subsidized by the government. So, farmer chooses to produce an amount higher than that which he would have chosen if he had to pay unsubsidized premium.