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Supply of Insurance for Specialty Crops and its Effect on Yield and Acreage

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  • Olen, Beau
  • Wu, Junjie
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    Abstract

    We exploit variation in the timing of specialty crop insurance supply to different crops and counties in California to assess its effect on output as decomposed into yield and harvested acreage. Four woody-perennial crops and one field-annual crop are used to represent this effect. We find that the supply of crop insurance has a significant positive effect on output for several perennial crops and the field crop, but it only has a significant positive effect on yield for certain perennial crops. These findings suggest that even for disparate crops the supply of insurance reduces production risks for the insured crops and causes harvested acreage to expand. The positive significant effect of insurance supply on yield for several of the woody-perennial crops suggests that, regardless of the effect on acreage, it accelerates growers’ adoption of improved tree/vine varieties and rootstocks, which are likely to be risk-increasing inputs due to the their relatively high cost of investment.

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    File URL: http://purl.umn.edu/150787
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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 150787.

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    Date of creation: 2013
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    Handle: RePEc:ags:aaea13:150787

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    Keywords: federal crop insurance program; specialty crops; yield; acreage; input-risk relationship; Crop Production/Industries; Demand and Price Analysis; Production Economics;

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    1. Miller, Stephen E. & Kahl, Kandice H. & Rathwell, P. James, 2000. "Revenue Insurance For Georgia And South Carolina Peaches," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 32(01), April.
    2. C. Edwin Young & Monte L. Vandeveer & Randall D. Schnepf, 2001. "Production and Price Impacts of U.S. Crop Insurance Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1196-1203.
    3. Joseph W. Glauber, 2004. "Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1179-1195.
    4. Barry K. Goodwin & Monte L. Vandeveer & John L. Deal, 2004. "An Empirical Analysis of Acreage Effects of Participation in the Federal Crop Insurance Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(4), pages 1058-1077.
    5. Vincent H. Smith & Barry K. Goodwin, 1996. "Crop Insurance, Moral Hazard, and Agricultural Chemical Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 428-438.
    6. Richards, Timothy J., 1998. "A Two Stage Model of the Demand For Specialty Crop Insurance," Working Papers 28546, Arizona State University, Morrison School of Agribusiness and Resource Management.
    7. Bruce A. Babcock & Joseph A. Herriges, 1994. "Input Demand Under Yield and Revenue Insurance," Center for Agricultural and Rural Development (CARD) Publications 94-wp127, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    8. Carriazo, Fernando & Claassen, Roger & Cooper, Joseph C. & Hellerstein, Daniel & Ueda, Kohei, 2010. "Grassland to Cropland Conversion in the Northern Plains: The Role of Markets and Policy," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61625, Agricultural and Applied Economics Association.
    9. Alfonso Miranda & Sophia Rabe-Hesketh, 2006. "Maximum likelihood estimation of endogenous switching and sample selection models for binary, ordinal, and count variables," Stata Journal, StataCorp LP, vol. 6(3), pages 285-308, September.
    10. Walters, Cory G. & Shumway, C. Richard & Chouinard, Hayley H. & Wandschneider, Philip R., 2012. "Crop Insurance, Land Allocation, and the Environment," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(2), August.
    11. Richards, Timothy J. & Mischen, Pamela, 1998. "The Demand for Specialty-Crop Insurance: Adverse Selection and Inefficiency," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 16(1).
    12. Ethan Ligon, 2011. "Supply and Effects of Specialty Crop Insurance," NBER Chapters, in: The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies, pages 113-142 National Bureau of Economic Research, Inc.
    13. Erik J. O'Donoghue & Michael J. Roberts & Nigel Key, 2009. "Did the Federal Crop Insurance Reform Act Alter Farm Enterprise Diversification?," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(1), pages 80-104.
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