ACRE: A Revenue-Based Alternative to Price-Based Commodity Payment Programs
AbstractThis paper develops a stochastic model for estimating the probability density function of the Average Crop Revenue Election (ACRE), a revenue-based commodity support payment that is offered under the 2008 Farm Act as an alternative to the traditional suite of price-based commodity payments, that is, marketing loan benefits and counter-cyclical payments. We minimize the potential for miss-specification bias in the model by using nonparametric and semi-nonparametric approaches as specification checks in the model. Our simulation results show that adding ACRE revenue payments to gross revenue reduced the downside risk in revenue for corn, wheat, and soybean farmers in 2009 in the four locations examined, with reductions ranging from 4% to 25%. Integrating Federal crop insurance with ACRE lowered insurance premiums from 10% to 40%, depending on the crop and location. A utility maximization approach is used to assess potential moral hazard effects of ACRE, and suggest little potential impact on acreage in the Heartland.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin with number 49180.
Date of creation: 24 Apr 2009
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Domestic support; average crop revenue election; loan deficiency payments; counter-cyclical payments; revenue; price; corn; yield; pairs bootstrap; kernel density; semi-nonparametric; combinatorial optimization; negative exponential utility function; Agricultural and Food Policy; Demand and Price Analysis;
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