Which statement accurately evaluates the differences between weather index
insurance and traditional crop insurance?
a) Weather index insurance reduces adverse selection by providing coverage
based on weather parameters, rather than individual risk factors, thereby
ensuring a more balanced risk pool.
b) Compared to crop insurance, weather index insurance increases adverse
selection because it attracts only high-risk farmers who anticipate frequent
weather-related losses, leading to a risk pool dominated by those with poor
crop yields.