Understanding the Dynamics of Crop Insurance Markets through an Exploratory Model

Abstract

Mitigating agrarian distress remains a global policy priority, with food security and community resilience occupying a central place in the United Nations’ Sustainable Development Goals. Crop insurance has long been positioned as a mechanism to safeguard farmers against production risks; however, despite decades of subsidies and policy support, participation rates remain limited across major agrarian economies. Flagship schemes in India or the federally subsidised programme in the United States continue to operate in conditions of incomplete markets, characterised by systemic risks, information asymmetry, and the inability to diversify losses across space and time. Literature has highlighted persistent issues of adverse selection, moral hazard, and basis risk, while the problem of correlated yields undermines the fundamental principle of risk pooling. Government subsidies, though significant, have not resolved these structural challenges, raising doubts about the feasibility of a self-sustaining, market-based solution.