Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates
A) the adverse selection problem.
B) the moral hazard problem.
C) the special interest effect.
D) logrolling.

Question

Quizplus · Accepted Answer

This situation demonstrates the moral hazard problem, as farmers are less likely to purchase crop insurance if they know that the government will provide disaster relief. They may take greater risks with their crops because they know they will be bailed out if something goes wrong.

Because the Federal Government Typically Provides Disaster Relief to Farmers