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Efficiency Impacts of Utilizing Soil Data in the Pricing of the Federal Crop Insurance Program

Author

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  • Joshua D. Woodard
  • Leslie J. Verteramo-Chiu

Abstract

Since the Agricultural Act of 2014, the federal crop insurance program (FCIP) has been the cornerstone agricultural policy in the United States, and is the largest such program globally, with about $100 billion in coverage annually. Given its scale and scope, the FCIP has the potential to have pervasive impacts on incentives and policy functioning if not designed and priced properly. Surprisingly, soil data are not considered by the government when establishing insurance guarantees or rates. Using soil data that could easily and feasibly be scaled nationally, we find that the pricing differentials caused by the government's failure to handle soil information leads to large errors in rating.

Suggested Citation

  • Joshua D. Woodard & Leslie J. Verteramo-Chiu, 2017. "Efficiency Impacts of Utilizing Soil Data in the Pricing of the Federal Crop Insurance Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 757-772.
    • Handle: RePEc:oup:ajagec:v:99:y:2017:i:3:p:757-772.
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    File URL: http://hdl.handle.net/10.1093/ajae/aaw099
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    Citations

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    Cited by:

    1. Francis Tsiboe & Jesse Tack, 2022. "Utilizing Topographic and Soil Features to Improve Rating for Farm‐Level Insurance Products," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 52-69, January.
    2. Paloch Suchato & Taro Mieno & Karina Schoengold & Timothy Foster, 2022. "The potential for moral hazard behavior in irrigation decisions under crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 53(2), pages 257-273, March.
    3. Liu, Y. & Ker, A., 2018. "Is There Too Much History in Historical Yield Data," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277293, International Association of Agricultural Economists.
    4. Luigi Biagini & Simone Severini, 2021. "The role of Common Agricultural Policy (CAP) in enhancing and stabilising farm income: an analysis of income transfer efficiency and the Income Stabilisation Tool," Papers 2104.14188, arXiv.org.
    5. Yaoyao Wu & Hanqi Liao & Lei Fang & Guizhen Guo, 2023. "Quantitative Study on Agricultural Premium Rate and Its Distribution in China," Land, MDPI, vol. 12(1), pages 1-14, January.
    6. Joshua D. Woodard & Jing Yi, 2020. "Estimation of Insurance Deductible Demand Under Endogenous Premium Rates," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(2), pages 477-500, June.
    7. Li, Hong & Porth, Lysa & Tan, Ken Seng & Zhu, Wenjun, 2021. "Improved index insurance design and yield estimation using a dynamic factor forecasting approach," Insurance: Mathematics and Economics, Elsevier, vol. 96(C), pages 208-221.
    8. Kim, Youngho, 2023. "Payments for Ecosystem Services Programs and Climate Change Adaptation in Agriculture," 2023 Annual Meeting, July 23-25, Washington D.C. 335971, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Federal crop insurance; soil; risk management; insurance rating;
    All these keywords.

    JEL classification:

    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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