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Does Federal Crop Insurance Encourage Farm Specialization and Fertilizer and Chemical Use?

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  • Weber, Jeremy G.
  • Key, Nigel
  • O'Donoghue, Erik J.

Abstract

Federally subsidized crop insurance has expanded in recent decades, with annual premium subsidies increasing from roughly $1 to $7 billion dollars between 2000 and 2013. The 2014 Farm Act further expanded crop insurance, making it the main conduit of financial support to farmers. Although designed for non-environmental goals, subsidized insurance may affect the use of land, fertilizer, and agrochemicals and therefore environmental externalities from agriculture such as nutrient and chemical runoff into lakes and streams. We use a newly constructed farm-level panel data set to examine farmer responses to changes in insurance coverage. Identification comes from an instrumental variable approach that exploits program limits on coverage, which constrained the response of some farmers to increasingly generous subsidies more than others. Our estimates indicate that expanded coverage had a small, if any, effect on farm decisions such as fertilizer and chemical use.

Suggested Citation

  • Weber, Jeremy G. & Key, Nigel & O'Donoghue, Erik J., 2015. "Does Federal Crop Insurance Encourage Farm Specialization and Fertilizer and Chemical Use?," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 204972, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:204972
    DOI: 10.22004/ag.econ.204972
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    References listed on IDEAS

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    Cited by:

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    2. Yu, Jisang & Smith, Aaron & Sumner, Daniel A., 2016. "The Effects of the Premium Subsidies in the U.S. Federal Crop Insurance Program on Crop Acreage," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236022, Agricultural and Applied Economics Association.
    3. Sung, Jae-hoon & Miranowski, John A., 2016. "Information technologies and field-level chemical use for corn production," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235858, Agricultural and Applied Economics Association.
    4. Ifft, Jennifer & Jodlowski, Margaret, 2016. "Is ICE Freezing US Agriculture? The Impact of Local Immigration Enforcement on Farm Profitability and Structure," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235950, Agricultural and Applied Economics Association.
    5. He, Juan & Zheng, Xiaoyong & Rejesus, Roderick & Yorobe, Jose Jr, 2016. "Estimating the Effect of Crop Insurance on Input Use When Insured Farmers are Monitored," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235225, Agricultural and Applied Economics Association.

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