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The Environmental Impacts of Subsidized Crop Insurance

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Author Info
Jeffrey LaFrance (University of California, Berkeley)
J. Shimshack (University of California, Berkeley)
S. Wu (University of California, Berkeley)

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Abstract

A partial equilibrium model of stochastic crop production is used to analyze the environmental impacts of popular subsidized crop insurance programs. Land use is unchanged only when an actuarially fair, perfectly separating insurance contract is offered. For the more typical pooling equilibrium contracts, however, land with a minimum quality that is stricly lower than the minimum quality without insurance will be added to production. In such cases, the environment will be adversely effected. If economically marginal land is also environmentally marginal, pooling crop insurance policies disproportionately contribute to the degradation of the environment. Popular subsidies merely exacerbate the problem.

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Publisher Info
Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number 912R.

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Date of creation: 01 Oct 2001
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Handle: RePEc:cdl:agrebk:912r

Note: oai:cdlib1:are_ucb-1054
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Related research
Keywords: agricultural subsidies crop insurance equilibrium (economics) land utilization risk

References listed on IDEAS
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  1. Quiggin, John, 1992. "Some observations on insurance, bankruptcy and input demand," Journal of Economic Behavior & Organization, Elsevier, vol. 18(1), pages 101-110, June. [Downloadable!] (restricted)
  2. Babcock, Bruce A. & Hennessy, David, 1994. "Input Demand Under Yield and Revenue Insurance," Staff General Research Papers 794, Iowa State University, Department of Economics. [Downloadable!]
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  3. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
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This page was last updated on 2008-8-16.

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