IDEAS home Printed from https://ideas.repec.org/a/eee/ecolec/v204y2023ipas0921800922003184.html
   My bibliography  Save this article

Unintended environmental benefits of crop insurance: Nitrogen and phosphorus in water bodies

Author

Listed:
  • Lu, Xun
  • Che, Yuyuan
  • Rejesus, Roderick M.
  • Goodwin, Barry K.
  • Ghosh, Sujit K.
  • Paudel, Jayash

Abstract

Agricultural policies without explicit environmental goals can indirectly affect the natural environment through its effect on farmer input use behavior. For example, the highly-subsidized crop insurance program in the United States (US), while developed to protect farmers against yield and revenue risks, also has the potential to influence fertilizer and land use decisions, which can then impact the extent of excess nitrogen and phosphorus that can run-off and pollute nearby water bodies. This study utilizes county-level panel data from 1989-2015 to directly evaluate the impact of crop insurance participation on nitrogen and phosphorus concentration in waterways. Results from linear panel fixed effects (FE) models suggest that counties with higher crop insurance participation tend to have lower nitrogen concentrations in its water bodies, but the effects are small. In contrast, we do not find a consistent statistically significant crop insurance effect on phosphorus concentrations. Findings based on alternative estimation techniques and other empirical specifications generally support our baseline FE model results. We posit that the modest crop insurance effects may be due to two competing mechanisms — the moral hazard effect of crop insurance (i.e., reducing fertilizer use), being counteracted by the incentive to bring in riskier crops or marginal land to production (i.e., increasing fertilizer use).

Suggested Citation

  • Lu, Xun & Che, Yuyuan & Rejesus, Roderick M. & Goodwin, Barry K. & Ghosh, Sujit K. & Paudel, Jayash, 2023. "Unintended environmental benefits of crop insurance: Nitrogen and phosphorus in water bodies," Ecological Economics, Elsevier, vol. 204(PA).
    • Handle: RePEc:eee:ecolec:v:204:y:2023:i:pa:s0921800922003184
    DOI: 10.1016/j.ecolecon.2022.107657
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0921800922003184
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ecolecon.2022.107657?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Walters, Cory G. & Shumway, C. Richard & Chouinard, Hayley H. & Wandschneider, Philip R., 2012. "Crop Insurance, Land Allocation, and the Environment," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(2), pages 1-20, August.
    2. Jeremy G. Weber & Nigel Key & Erik O’Donoghue, 2016. "Does Federal Crop Insurance Make Environmental Externalities from Agriculture Worse?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(3), pages 707-742.
    3. Roger Claassen & Christian Langpap & JunJie Wu, 2017. "Impacts of Federal Crop Insurance on Land Use and Environmental Quality," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 592-613.
    4. Hendricks, Nathan P. & Sinnathamby, Sumathy & Douglas-Mankin, Kyle & Smith, Aaron & Sumner, Daniel A. & Earnhart, Dietrich H., 2014. "The environmental effects of crop price increases: Nitrogen losses in the U.S. Corn Belt," Journal of Environmental Economics and Management, Elsevier, vol. 68(3), pages 507-526.
    5. Bruce A. Babcock & David A. Hennessy, 1996. "Input Demand under Yield and Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 416-427.
    6. DeLay, Nathan, 2019. "The Impact of Federal Crop Insurance on the Conservation Reserve Program – Erratum," Agricultural and Resource Economics Review, Cambridge University Press, vol. 48(3), pages 531-532, December.
    7. Vincent H. Smith & Barry K. Goodwin, 1996. "Crop Insurance, Moral Hazard, and Agricultural Chemical Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 428-438.
    8. Barry K. Goodwin & Monte L. Vandeveer & John L. Deal, 2004. "An Empirical Analysis of Acreage Effects of Participation in the Federal Crop Insurance Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1058-1077.
    9. JunJie Wu, 1999. "Crop Insurance, Acreage Decisions, and Nonpoint-Source Pollution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 305-320.
    10. Barry K. Goodwin & Vincent H. Smith, 2013. "What Harm Is Done By Subsidizing Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 489-497.
    11. DeLay, Nathan, 2019. "The Impact of Federal Crop Insurance on the Conservation Reserve Program," Agricultural and Resource Economics Review, Cambridge University Press, vol. 48(2), pages 297-327, August.
    12. Francis Annan & Wolfram Schlenker, 2015. "Federal Crop Insurance and the Disincentive to Adapt to Extreme Heat," American Economic Review, American Economic Association, vol. 105(5), pages 262-266, May.
    13. Jisang Yu & Aaron Smith & Daniel A Sumner, 2018. "Effects of Crop Insurance Premium Subsidies on Crop Acreage," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(1), pages 91-114.
    14. Laura E. Grant & Katherine K. Grooms, 2017. "Do Nonprofits Encourage Environmental Compliance?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(S1), pages 261-288.
    15. John K. Horowitz & Erik Lichtenberg, 1993. "Insurance, Moral Hazard, and Chemical Use in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 926-935.
    16. Ruixue Wang & Roderick M Rejesus & Serkan Aglasan, 2021. "Warming Temperatures, Yield Risk and Crop Insurance Participation [Federal crop insurance and the disincentive to adapt to extreme heat]," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 48(5), pages 1109-1131.
    17. Roger Claassen & Christian Langpap & JunJie Wu, 2017. "Impacts of Federal Crop Insurance on Land Use and Environmental Quality," American Journal of Agricultural Economics, John Wiley & Sons, vol. 99(3), pages 592-613, April.
    18. David Tilman & Kenneth G. Cassman & Pamela A. Matson & Rosamond Naylor & Stephen Polasky, 2002. "Agricultural sustainability and intensive production practices," Nature, Nature, vol. 418(6898), pages 671-677, August.
    19. Jeffrey M. Wooldridge, 2015. "Control Function Methods in Applied Econometrics," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 420-445.
    20. Jayash Paudel & Christine L. Crago, 2021. "Environmental Externalities from Agriculture: Evidence from Water Quality in the United States," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 185-210, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Edith Kouakou & Marielle Brunette & Richard Koenig & Philippe Delacote, 2023. "Crop Yield Risks and Nitrogen Fertilisation in French Agriculture: Implications for Crop Insurance," Working Papers of BETA 2023-38, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Feng, Shuaizhang & Han, Yujie & Qiu, Huanguang, 2021. "Does crop insurance reduce pesticide usage? Evidence from China," China Economic Review, Elsevier, vol. 69(C).
    2. Biram, Hunter D. & Tack, Jesse & Nehring, Richard F., 2022. "Does Crop Insurance Participation Impact Quality-Adjusted Pesticide Usage?," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322136, Agricultural and Applied Economics Association.
    3. Jeremy G. Weber & Nigel Key & Erik O’Donoghue, 2016. "Does Federal Crop Insurance Make Environmental Externalities from Agriculture Worse?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(3), pages 707-742.
    4. Möhring, Niklas & Dalhaus, Tobias & Enjolras, Geoffroy & Finger, Robert, 2020. "Crop insurance and pesticide use in European agriculture," Agricultural Systems, Elsevier, vol. 184(C).
    5. Prasenjit N. Ghosh & Ruiqing Miao & Emir Malikov, 2023. "Crop insurance premium subsidy and irrigation water withdrawals in the western United States," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 968-992, October.
    6. Juan He & Xiaoyong Zheng & Roderick Rejesus & Jose Yorobe, 2020. "Input use under cost‐of‐production crop insurance: Theory and evidence," Agricultural Economics, International Association of Agricultural Economists, vol. 51(3), pages 343-357, May.
    7. Agnieszka Kurdyś-Kujawska & Agnieszka Sompolska-Rzechuła & Joanna Pawłowska-Tyszko & Michał Soliwoda, 2021. "Crop Insurance, Land Productivity and the Environment: A Way forward to a Better Understanding," Agriculture, MDPI, vol. 11(11), pages 1-17, November.
    8. Glauber, Joseph W., 2017. "Agricultural insurance and the WTO:," IFPRI book chapters, in: Bouët, Antoine & Laborde Debucquet, David (ed.), Agriculture, development, and the global trading system: 2000– 2015, chapter 10, International Food Policy Research Institute (IFPRI).
    9. Chemeris, Anna & Liu, Yong & Ker, Alan P., 2022. "Insurance subsidies, climate change, and innovation: Implications for crop yield resiliency," Food Policy, Elsevier, vol. 108(C).
    10. Zheng, Yanan & Goodhue, Rachael E., 2022. "Intensive or Extensive Margin Effects? Growers’ Responses to the Restriction of High-Volatile Organic Compound (VOC) Pesticide Products in the San Joaquin Valley, California," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322085, Agricultural and Applied Economics Association.
    11. Ifft, Jennifer & Jodlowski, Margaret, 2018. "Federal crop insurance participation and adoption of sustainable production practices by US corn farms," 166th Seminar, August 30-31, 2018, Galway, West of Ireland 276196, European Association of Agricultural Economists.
    12. Jisang Yu & Nathan P. Hendricks, 2020. "Input Use Decisions with Greater Information on Crop Conditions: Implications for Insurance Moral Hazard and the Environment," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 826-845, May.
    13. Weber, Jeremy G. & Key, Nigel & O'Donoghue, Erik J., 2015. "Does Federal Crop Insurance Encourage Farm Specialization and Fertilizer and Chemical Use?," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 204972, Agricultural and Applied Economics Association.
    14. Tao Li & Lihong Chen & Xiaoxu Li & Sha Li & Haibing Chen & Hao Ji, 2021. "The Impact of Cost-of-Production Insurance on Input Expense of Fruit Growing in Ecologically Vulnerable Areas: Evidence from Shaanxi Province of China," Sustainability, MDPI, vol. 13(21), pages 1-14, November.
    15. Coleman, Jane A. & Shaik, Saleem, 2009. "Time-Varying Estimation of Crop Insurance Program in Altering North Dakota Farm Economic Structure," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49516, Agricultural and Applied Economics Association.
    16. Ifft, Jennifer & Jodlowski, Margaret, 2018. "Federal crop insurance participation and adoption of sustainable production practices by U.S. farms," SCC-76 Meeting, 2018, April 5-7, Kansas City, Missouri 276148, SCC-76: Economics and Management of Risk in Agriculture and Natural Resources.
    17. Geoffroy Enjolras & Magali Aubert, 2020. "How does crop insurance influence pesticide use? Evidence from French farms," Review of Agricultural, Food and Environmental Studies, Springer, vol. 101(4), pages 461-485, December.
    18. Yugang Ding & Cheng Sun, 2022. "Does agricultural insurance promote primary industry production? Evidence from a quasi-experiment in China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(2), pages 434-459, April.
    19. He, Juan & Zheng, Xiaoyong & Rejesus, Roderick & Yorobe, Jose Jr, 2016. "Estimating the Effect of Crop Insurance on Input Use When Insured Farmers are Monitored," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235225, Agricultural and Applied Economics Association.
    20. Lubowski, Ruben N. & Bucholtz, Shawn & Claassen, Roger & Roberts, Michael J. & Cooper, Joseph C. & Gueorguieva, Anna & Johansson, Robert C., 2006. "Environmental Effects Of Agricultural Land-Use Change: The Role Of Economics And Policy," Economic Research Report 33591, United States Department of Agriculture, Economic Research Service.

    More about this item

    Keywords

    Crop insurance; Environmental externalities; Nitrogen pollution;
    All these keywords.

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:204:y:2023:i:pa:s0921800922003184. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ecolecon .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.