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Economic Evaluation Of Bt Corn Refuge Insurance

Author

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  • Mitchell, Paul D.
  • Hurley, Terrance M.
  • Hellmich, Richard L.

Abstract

The EPA has imposed mandatory refuge requirements for Bt crops to prolong the efficacy of Bt. Growers have no economic incentive to plant the required refuge because refuge crops are on average less productive and more risky. This paper evaluates refuge insurance--insurance that pays indemnities for yield losses on refuge due to insect damage--as a tool to increase grower compliance incentives. We determine actuarially fair insurance premiums, then evaluate the feasibility of private provision of refuge insurance and its impact on grower incentives to comply with refuge requirements. A private market for refuge insurance appears unlikely because our analysis suggests that even a 2% load on the actuarially fair premium makes growers unwilling to buy refuge insurance. This load is not sufficient to cover administrative costs and provide a normal economic return. Even actuarially fair refuge insurance increases grower compliance incentives less than 3%. This result occurs because the primary benefit of Bt corn is yield enhancement and not risk reduction, but refuge insurance only reduces risk. For refuge insurance to provide significant compliance incentives, conventional insurance products must be restructured to draw premiums from sources other than grower risk premiums.

Suggested Citation

  • Mitchell, Paul D. & Hurley, Terrance M. & Hellmich, Richard L., 2000. "Economic Evaluation Of Bt Corn Refuge Insurance," 2000 Annual meeting, July 30-August 2, Tampa, FL 21757, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea00:21757
    DOI: 10.22004/ag.econ.21757
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    References listed on IDEAS

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    1. Erik Lichtenberg & David Zilberman, 1986. "The Econometrics of Damage Control: Why Specification Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 261-273.
    2. Mitchell, Paul David, 1999. "The theory and practice of green insurance: insurance to encourage the adoption of corn rootworm IPM," ISU General Staff Papers 1999010108000013154, Iowa State University, Department of Economics.
    3. Terrance M. Hurley & Bruce A. Babcock & Richard L. Hellmich, 1997. "Biotechnology and Pest Resistance: An Economic Assessment of Refuges," Center for Agricultural and Rural Development (CARD) Publications 97-wp183, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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    Cited by:

    1. Terrance Hurley & Silvia Secchi & Bruce Babcock & Richard Hellmich, 2002. "Managing the Risk of European Corn Borer Resistance to Bt Corn," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(4), pages 537-558, August.
    2. Wang, Willa & Van der Sluis, Evert, 2005. "Corn Producer Practices and Insect Resistance Management Requirements," 2005 Annual meeting, July 24-27, Providence, RI 19472, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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