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Agricultural Insurance and Soil Depletion in a Simple Dynamic Model

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  • Robert Innes
  • Sergio Ardila

Abstract

We study the effects of agricultural insurance on farm production choices, soil depletion and the environment when there are two related risks, one in short-to-medium run production revenues and the other in land value. The analysis considers "pure" and "truncating" insurance programs that stabilize linear combinations of short-run revenue risk and land price risk. Production-revenue-stabilizing insurance is often found to elicit increased farmer output, thus exacerbating environmental externalities and causing further soil depletion. Land-value-stabilizing insurance typically elicits lower output thus mitigating environmental externalities and pushing farmers closer to their complete-insurance output levels.

Suggested Citation

  • Robert Innes & Sergio Ardila, 1994. "Agricultural Insurance and Soil Depletion in a Simple Dynamic Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 371-384.
    • Handle: RePEc:oup:ajagec:v:76:y:1994:i:3:p:371-384.
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    File URL: http://hdl.handle.net/10.2307/1243650
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    Cited by:

    1. Lichtenberg, Erik, 2002. "Agriculture and the environment," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 2, chapter 23, pages 1249-1313, Elsevier.
    2. Jackson, T.M. & Hanjra, Munir A. & Khan, S. & Hafeez, M.M., 2011. "Building a climate resilient farm: A risk based approach for understanding water, energy and emissions in irrigated agriculture," Agricultural Systems, Elsevier, vol. 104(9), pages 729-745.
    3. Lavee, Doron, 2010. "The effect of water supply uncertainty on farmers' choice of crop portfolio," Agricultural Water Management, Elsevier, vol. 97(11), pages 1847-1854, November.
    4. Deal, John, 2004. "Crop Insurance, Government Agricultural Policies, And Soil Erosion," 2004 Annual meeting, August 1-4, Denver, CO 20159, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Wiig, Henrik & Aune, Jens B. & Glomsrod, Solveig & Iversen, Vegard, 2001. "Structural adjustment and soil degradation in Tanzania: A CGE model approach with endogenous soil productivity," Agricultural Economics, Blackwell, vol. 24(3), pages 263-287, March.

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