Research / An Evaluation of Moral Hazard Risks in Government of Canada Farm Business Risk Management Safety Net Programs

An Evaluation of Moral Hazard Risks in Government of Canada Farm Business Risk Management Safety Net Programs

Researchers: Scott Jeffrey, University of Alberta

Research Summary

The goal of this research is to investigate and assess the potential for moral hazard behaviour associated with participation in Canadian Federal Government safety net programs, specifically CAIS and its replacement programs (i.e., AgriInvest and AgriStability). The main research objective is to examine the degree to which CAIS and other stabilization programs influence producers to undertake higher risk agricultural production or reduce the level of on-farm risk management such as enterprise diversification. The outcomes of this research will be of value to policymakers in terms of providing feedback as to the possible production effects and on-farm risk management strategies of existing and proposed Business Risk Management programs within the APF.

Significance of Research

Arising out of economic research and industry consultations regarding the next generation APF, there were concerns expressed that participation in CAIS rewarded producers who did not practice diversification. This suggests the possibility of moral hazard behaviour associated with the program. The outcomes of this research will provide useful information to address the more general question of whether participation in APF safety net programs significantly influence producer behaviour and what program design changes, if any, will reduce the moral hazard incentives.

Summary of Research Results: Yet to come.