Reference no: EM133001554

Question - Multiple Peril Crop Insurance and other agricultural risk management initiatives have been plagued with moral hazard, adverse selection and other issues. It is believed that weather index insurance could reduce these challenges but it is not without its own challenges.

i. Explain your understanding of moral hazard and adverse selection in the context of agricultural insurance, particularly in the context of multi-peril crop insurance.

ii. Identify some other mechanisms adopted in managing agricultural risk like government relief efforts and subsidies.

iii. What are the challenges associated with these mechanisms?

iv. Why is weather index insurance considered to be a possible solution to the problem of agricultural insurance and what are the challenges of weather index insurance?