Study On The Problems Of The Adverse Selection And Moral Hazard In The Development Of Chinese Agricultural Insurance

Agriculture is the foundation of China, which is a large agricultural country. And China has a 1.4 billion population, of which 56% is rural. Solving the problem of peasants and, developing modernized agriculture and increasing agricultural productivity are impossible to be ignored in the process of sustainable development in China, which is building a harmonious socialist society and achieving common prosperity.As an agricultural country, China has been taking widely attention to the development of agriculture. The agricultural insurance, the powerful guarantee of modern agricultural development, is usually regarded as one of strongly effective methods to transfer agricultural risk. As a result, it naturally gets more attention from governments. However, the development of China’s agricultural insurance has stagnated at a low level of development. The fundamental reason is the insured object in agricultural insurance is the living plants and animals that can be greatly influenced by the weather factors and the natural risks is inevitable. The natural risks could be specified as the natural risks existing in the insurance market, the adverse selection and moral hazard problems in agricultural insurance, the market failure caused by the agricultural insurance market supply and demand imbalances. These risks hamper the development of agricultural insurance in China. This article will combine the insurance theory to the agricultural insurance market analysis with the economics related knowledge to analyze and research the adverse selection and moral hazard phenomenon in the process of development of China’s agricultural insurance, and to put forward the corresponding solutions.In order to solve the problem of adverse selection and the moral risk and such phenomenon emerged in China’s agriculture insurance market, the article draws on the measures, which the United States, Japan and India adopt to solve the adverse selection and moral hazard problems emerging in agriculture insurance market, that provided the certain enlightenment function to our agriculture insurance development. The article analysis the game between the famers and the insurance company, the game between the government and the insurance company and the game between the insurance company and the agency by the game theory, and conclude the conditions that should be satisfied if we want to avoid the moral hazard and reaches the expected game, When the game happens between the insurance company and the agency, in order to avoid the moral hazard from the agency and solve the problem of the principal-agent mechanism, the insurance company can put their own interests associated with the agency’s interests. Once the insurance company’s interest is damaged, the agent’s interest will be damaged as well. As a result, staffs will fulfill the company and give up the lazy. When the company gets earnings, staffs will benefit their own interests to avoid the risk of moral hazard. According to the above analysis, the article proposes the solutions from three aspects: farmers, government and the insurance company. And what we can do to make our agricultural insurance better through the mutual effort from the three aspects.The author uses game theory to analyze the game in China’s agricultural insurance between the government and insurance companies. In order to guarantee the social benefits, the government would subsidize, as long as social benefits are greater than fiscal subsidies, to ensure the balance of payments of the insurance company, and to continue as a going concerns. Finally the article puts forward realistic measures to avoid adverse selection and moral hazard problems, in order to guarantee the development of agricultural insurance in China.However, there are several shortcomings existing in the paper. For the agricultural insurance analysis and research of the adverse selection and moral hazard, it is difficult to quantify the impact intuitively only through analyzing one factor with discharging of other ones, the research is also affected by some other difficulties. And the limited document reference affect the study, etc.