Effects of Crop Insurance Subsidies and Sodsaver on Land Use Change, The
AbstractThere have long been concerns that federal crop insurance subsidies may significantly impact land use decisions. It is well known that classical insurance market information asymmetry problems can lead to a social excess of risky land entering crop production. We provide a conceptual model to show that the problem will arise absent any information failures. This is because the subsidy is (a) proportional to acres planted, and (b) greatest for the most production risky land. Using field-level yield data, we follow this observation through to establish the implications of subsidies for the extent of crop production, with particular emphasis on the US Prairie Pothole Region, where cropland growth is likely to have marked adverse environmental impacts. Simulation results show that up to 3% of land under federal crop insurance would have not been converted from grassland if there had been no crop insurance subsidies. Sodsaver, a provision that eliminates crop insurance and Supplemental Revenue Assistance payments in the first five years of crop production on new breakings, will reduce grassland conversion by 4.9% or less.
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Bibliographic InfoPaper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 12-wp530.
Date of creation: Sep 2012
Date of revision:
crop insurance; copula; grassland; land use; Sodsaver; Supplemental Revenue Assistance Payments JEL Code: Q15; Q18; Q24.;
Find related papers by JEL classification:
- Sup - - - - - -
- Rev - Urban, Rural, Regional, Real Estate, and Transportation Economics - - - - -
- Ass - General Economics and Teaching - - - - -
- Pay - Economic Systems - - - - -
- JEL - Labor and Demographic Economics - - - - -
- Cod - Mathematical and Quantitative Methods - - - - -
- Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
- Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
- Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
This paper has been announced in the following NEP Reports:
- NEP-AGR-2013-04-20 (Agricultural Economics)
- NEP-ALL-2013-04-20 (All new papers)
- NEP-ENV-2013-04-20 (Environmental Economics)
- NEP-IAS-2013-04-20 (Insurance Economics)
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