Asymmetric information can be costly in insurance markets and can even hinder market development, as is the case for most agricultural insurance markets. I study information asymmetries in crop insurance in the Philippines using a randomized field experiment. Using a combination of preference elicitation, a two-level randomized allocation of insurance and detailed data collection, I test for and find evidence of adverse selection, moral hazard and their interaction – that is, selection on anticipated moral hazard behavior. I conclude that information asymmetry problems are substantial in this context and that variations on this experimental design may be useful in future work for identifying interactions between choice and treatment effects.
September 07, 2016