The Study Of Information Asymmetry And Agricultural Insurance Exchange

Agriculture is the lifeline of our national economy, it affects the development of our national economy and the stability of our life. Because of its wide distribution, agriculture suffers a lot from natural disaster every year. It will be a heavy burden to our finance if we rely on it alone to offer subsidy and relief to agriculture. Agriculture is a dispersal mechanism regard to it. Farmers can distribute their risk by buying it. They can get economic compensation from insurance companies and this can ease the burden of our finance. However, insurance starts fairly late in our country. Agriculture, as special property insurance, develops relative slowly. Just like normal economic transactions, information asymmetry also exists in the transactions of agriculture insurance which can leads to adverse selection and moral hazard. The phenomenon exists both in the insured and insurers, this causes the mutual suspicion between them and the lack of supply and demand of agriculture insurance. Furthermore, agriculture insurance will not play its role. In order to make agriculture develops healthily and stably, it is necessary to develop agriculture insurance rapidly. Resolving information asymmetry plays an important role in this process. The essay refers to a lot of articles about information asymmetry from domestic and overseas as well as well-established methods for model analysis from abroad and domestic research findings in order to offer specific suggestions for the issue.The opening chapter gives a general overview of the subject. Readers can have a general understanding of the two keywords of this article. The author provides more information about the basic theory of information asymmetry and agriculture insurance which includes characters and classification of information asymmetry in this part. While the basic theory of agriculture insurance mainly elaborates its general aspects, characteristics, functions and the difficulties it confronts in its worldwide popularity. From which, the author gives the conception of the information asymmetry in the agriculture insurance. In the second part, the author analyzes the current situation of this phenomenon. At first, the author describes the current situation of information asymmetry and comes to the conclusion that it is an important factor which affects the development of agriculture insurance. At the end of this part, the author analyzes the root of it. In the third part, the author refers to the case happened in Meishan to demonstrate the adverse selection and moral hazard which exist in the insured leading to the raise of the rate of compensation and results in the failure of agriculture insurance. Then, the author founds game model of adverse selection, moral hazard superlatively and gets a conclusion that insurers will not underwrite subject-matter insured in detail before they accept insurance because of the cost of information collection, which will lead to the problem of adverse selection and the insurance rate includes not only pure rate and additional rate bust also cost of claims result from moral hazard. In the fourth part, the author analyzes the successful experience from the aspects of legislation, policies, types of organization and categories abroad and states the methods to avoid adverse selection and moral hazard. On the basis of this and the conditions of our country, the author draws a conclusion that in order to solve the problem, we should make methods from microcosmic, middle and macroscopic levels. From the macroscopic, the government should perfect relative laws and regulations for agriculture insurance actively, then there are laws to abide by for the operation of agriculture insurance. At the same time, the government should offer policy support, for example, offer subsidy or reduction of taxes etc, and strengthens supervision, standardizes the management of it. From the middle level, insurance companies should intensify information disclosure, expand transparency to heighten public’s confidence; strengthen risk management to reduce operation costs and the rate of claim ratio as well as choose an appropriate type of organization to fit the basic condition of our country. From the microcosmic level, insurance companies should develop new types of agriculture insurance to deal with adverse selection and moral hazard and reduce the incidence rate and loss rate. They should also pay more attention to the training of their employees and increase their profession, design a contract for which the insured the insurers can share losses in order to reduce the chance of the insured’s moral hazards.The innovations and features of the essay are as follows. Firstly, for the topic selection, it brings something new to study the trading activity of agriculture insurance under information asymmetry. Secondly, the article uses the method of case analysis to demonstrate adverse selection and moral hazard existed in the trading activity of agriculture insurance and uses the method of model analysis to discuss the measures that farm insurance companies should take when facing such problems. Thirdly, the article discuss solutions for the information asymmetry existed in the trade activities of agriculture insurance from the level of macroscopic, middle and microcosmic after analyzing this phenomenon.