Blockchain-powered agricultural production and insurance: A game-theoretic model for fraud prevention and smart compensation

This paper presents a game theory model involving one insurance company (the insurer) and one agricultural producer (e.g., crop growers and agribusinesses). The latter uses blockchain oracles (e.g., Internet of Things) to gather information from the ecosystem and update smart contracts when disasters occur, thereby avoiding sales losses. In some cases, the agricultural producer may adopt fraudulent behaviors and falsify the extent of the damages to receive higher economic compensation since the insurer does not have full visibility over the agricultural producer's business. However, the insurer can decide to support the agricultural producer's blockchain investment to obtain accurate information about the real damages; hence, eliminating information asymmetry, mitigating false claims, and offering additional advantages to the agricultural producer, such as quick reimbursements for damages managed by smart contracts and no extra verification costs. Our findings show that collaboration on blockchain enhances investment strategies, reduces insurance fees, and yields a profit-Pareto-improving outcome. However, the joint investment can fail under some specific conditions, including equal price and reimbursement rates, high disaster avoidance capabilities, maximum coverage requirements, low verification costs, and delayed payments. Therefore, collaboration for blockchain technology requires a joint analysis of economic and operational implications.