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Economic Evaluation Of Bt Corn Refuge Insurance

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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.

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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2000 Annual meeting, July 30-August 2, Tampa, FL with number 21757.

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Date of creation: 2000
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Handle: RePEc:ags:aaea00:21757

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Keywords: Research and Development/Tech Change/Emerging Technologies; Risk and Uncertainty;

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  1. Hurley, Terrance M. & Babcock, Bruce A. & Hellmich, Richard L., 1998. "Biotechnology And Pest Resistance: An Economic Assessment Of Refuges," 1998 Annual meeting, August 2-5, Salt Lake City, UT 21000, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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Cited by:
  1. Hurley, Terrance M. & Secchi, Silvia & Babcock, Bruce A. & Hellmich, Richard L., 2002. "Managing the Risk of European Corn Borer Resistance to Bt Corn," Staff General Research Papers 10294, Iowa State University, Department of Economics.
  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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