Consider two groups of risk-averse farmers. One group practices mutual insurance, but the other does not. In the questions to follow, base your arguments on the assumption that a menu of production techniques and crops are available for cultivation, and that farmers choose from this menu.

(a) If farmers can collectively choose their crops/techniques, argue that the insuring group is likely to display a higher average rate of return on its farming investments.

(b) On the other hand, argue that an existing system of insurance might dampen the individual incentive to adopt newly available methods or crops with a higher average rate of return.