Daye Zhai (2nd Year UPEP PhD) - Nicholas School of Environment
The Moral Hazard–Environmental Externalities Dilemma in Crop Insurance: Evidence from Water Quality in China
Date: 10/03/2025 (Fri)
Time: 2:00pm- 3:00pm
Location: Seminar will be held on-site: Rubenstein 151
Organizer: Alejandro and Xingchen
Meeting Schedule: (Not currently open for scheduling. Please contact the seminar organizer listed above.)
All meetings will be held in the same location as the seminar unless otherwise noted.
2:00pm - Seminar Presentation (2:00pm to 3:00pm)
Additional Comments: Abstract: China’s subsidized agricultural insurance has evolved from covering only direct material costs, to covering both material costs and land rent, and more recently to full cost insurance (FCI) and planting income insurance (PII). This paper evaluates the environmental consequences of these schemes for the three major staple crops. Our findings show that agricultural insurance, on average, reduces concentrations of total nitrogen (TN) and total phosphorus (TP) in surface water by 3.31% (0.085 mg/L) and 2.78% (0.002 mg/L), respectively. Disaggregating by scheme, FCI decreases TN and TP by 5.93% (0.153 mg/L) and 4.66% (0.003 mg/L), while adding PII on top of FCI raises TN and TP by 8.83% (0.239 mg/L) and 7.19% (0.005 mg/L). Event study using heterogeneity-robust estimators indicates that parallel trends are plausible. The baseline results remain robust after considering alternative control groups, potential spatial spillovers, and placebo tests. Mechanism analysis shows that moral hazard—rather than adverse selection—drives the contrasting water quality effects. PII effectively avoids the moral hazard inherent in FCI but comes at the cost of intensified water pollution. Future policy design should explicitly weigh the tension between moral hazard and environmental sustainability. Stage: Post-estimation Type of feedback: Empirical design, storyline, etc.