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The Tangled Web of Agricultural Insurance: Evaluating the Impacts of Government Policy

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  • Pearcy, Jason
  • Smith, Vincent H.

Abstract

This paper examines how changes in major elements of the U.S. federal crop insurance program affect the structure of the agricultural insurance industry.We model interactions between farmers, insurance agents and insurance companies. Marginal changes in government policy (premium subsidy rate, A&O subsidy rate, and loading factor) affect the insurance premium rate, agent compensation rates, agent effort levels, and market demand for crop insurance. Farmers prefer a marginal increase in the premium subsidy rate, but the insurance companies’ most preferred policy is a marginal increase in the A&O subsidy rate. We also evaluate the consequences of changes in crop prices.

Suggested Citation

  • Pearcy, Jason & Smith, Vincent H., 2015. "The Tangled Web of Agricultural Insurance: Evaluating the Impacts of Government Policy," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(1), pages 1-32.
  • Handle: RePEc:ags:jlaare:197378
    DOI: 10.22004/ag.econ.197378
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    References listed on IDEAS

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    1. Vincent H. Smith & Barry K. Goodwin, 1995. "The Economics of Crop Insurance and Disaster Aid," Books, American Enterprise Institute, number 53374, September.
    2. Mark Armstrong & Jidong Zhou, 2011. "Paying for Prominence," Economic Journal, Royal Economic Society, vol. 121(556), pages 368-395, November.
    3. Vincent H. Smith & Joseph W. Glauber, 2012. "Agricultural Insurance in Developed Countries: Where Have We Been and Where Are We Going?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(3), pages 363-390.
    4. Dana, James D, Jr & Spier, Kathryn E, 2001. "Revenue Sharing and Vertical Control in the Video Rental Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(3), pages 223-245, September.
    5. Keith H. Coble & Barry J. Barnett, 2013. "Why Do We Subsidize Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 498-504.
    6. Vincent H. Smith & Joseph W. Glauber, 2012. "Agricultural Insurance in Developed Countries: Where Have We Been and Where Are We Going?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(3), pages 363-390.
    7. Mario J. Miranda & Katie Farrin, 2012. "Index Insurance for Developing Countries," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 34(3), pages 391-427.
    8. Joseph W. Glauber, 2004. "Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1179-1195.
    9. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    10. Alan P. Ker, 2001. "Private Insurance Company Involvement in the U.S. Crop Insurance Program," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 49(4), pages 557-566, December.
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    Cited by:

    1. Nathan D. DeLay & Hayley H. Chouinard & Cory G. Walters & Philip R. Wandschneider, 2020. "The influence of crop insurance agents on coverage choices: The role of agent competition," Agricultural Economics, International Association of Agricultural Economists, vol. 51(4), pages 623-638, July.
    2. Fabio G., Santeramo & Ilaria, Russo & Emilia, Lamonaca, 2022. "Italian subsidised crop insurance: what the role of policy changes," MPRA Paper 115299, University Library of Munich, Germany.
    3. Delay, Nathan & Chouinard, Hayley & Walters, Cory & Wandschneider, Philip, 2020. "Examining the Role of the Crop Insurance Selling Agent," Cornhusker Economics 307133, University of Nebraska-Lincoln, Department of Agricultural Economics.
    4. Smith, Vincent, 2017. "The US Federal Crop Insurance Program: A Case Study in Rent-Seeking," Working Papers 06899, George Mason University, Mercatus Center.
    5. Smith, Vincent H. & Glauber, Joseph & Dismukes, Robert, 2016. "Rent Dispersion in the US Agricultural Insurance Industry:," IFPRI discussion papers 1532, International Food Policy Research Institute (IFPRI).
    6. Kulawik, Jacek, 2018. "Neoclassical approach to traditional business insurance - introduction to the theory of agricultural insurance," Problems of Agricultural Economics / Zagadnienia Ekonomiki Rolnej 276371, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    7. Ramirez, Octavio A. & Shonkwiler, J. Scott, 2017. "A Probabilistic Model of Crop Insurance Purchase Decision," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(1), pages 1-17, January.

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    Agribusiness; Agricultural Finance;

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