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Distributional Effects of Crop Insurance Subsidies

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  • Jayson L. Lusk

Abstract

This article investigates the distributional effects of the subsidized crop insurance program in the United States. An equilibrium displacement model is constructed, linking the supply of disaggregate farm commodities with final consumer food demands. Using state-specific data on farm commodity production, crop insurance payments, food expenditures, and federal tax payments, the welfare effects of the removal of the premium subsidies for crop insurance are calculated for each state in the United States. Results indicate that the removal of the premium subsidy for crop insurance would have resulted in aggregate net economic benefits of $622, $932, and $522 million in 2012, 2013, and 2014, respectively. The deadweight loss amounts to about 9.6%, 14.4%, and 8.0% of the total crop insurance subsides paid to agricultural producers in 2012, 2013, and 2014, respectively. In aggregate, removal of the premium subsidy for crop insurance reduces farm producer surplus and consumer surplus, with taxpayers being the only aggregate beneficiary. The findings reveal that the costs of such farm policies are often hidden from food consumers in the form of a higher tax burden. On a disaggregate level, there is significant variation in effects of removal of the premium subsidy for crop insurance across states. Agricultural producers in several Western states, such as California, Oregon, and Washington, are projected to benefit from the removal of the premium subsides for crop insurance, whereas producers in the Plains States, such as North Dakota, South Dakota, and Kansas, are projected to be the biggest losers.

Suggested Citation

  • Jayson L. Lusk, 2017. "Distributional Effects of Crop Insurance Subsidies," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 39(1), pages 1-15.
    • Handle: RePEc:oup:apecpp:v:39:y:2017:i:1:p:1-15.
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    File URL: http://hdl.handle.net/10.1093/aepp/ppw002
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    References listed on IDEAS

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    1. Okrent, Abigail M. & Alston, Julian M., 2011. "Demand for Food in the United States: A Review of Literature, Evaluation of Previous Estimates, and Presentation of New Estimates of Demand," Monographs, University of California, Davis, Giannini Foundation, number 251908, December.
    2. Harrington, David H. & Dubman, Robert, 2008. "Equilibrium Displacement Mathematical Programming Models: Methodology and Model of the U.S. Agricultural Sector," Technical Bulletins 184313, United States Department of Agriculture, Economic Research Service.
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    5. Wright, Brian D., 2014. "Multiple Peril Crop Insurance," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 29(3), pages 1-5, September.
    6. Lusk, Jayson L. & Roosen, Jutta & Shogren, Jason (ed.), 2011. "The Oxford Handbook of the Economics of Food Consumption and Policy," OUP Catalogue, Oxford University Press, number 9780199569441, Decembrie.
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    Cited by:

    1. Tsiboe, Francis & Turner, Dylan, 2023. "The crop insurance demand response to premium subsidies: Evidence from U.S. Agriculture," Food Policy, Elsevier, vol. 119(C).
    2. Gohin, Alex, 2017. "Macroeconomic impacts of the U.S. farm policy: a second best assessment," Conference papers 332819, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Francis Tsiboe & Jesse Tack, 2022. "Utilizing Topographic and Soil Features to Improve Rating for Farm‐Level Insurance Products," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 52-69, January.
    4. Yuqiang Gao & Yongkang Shu & Hongjie Cao & Shuting Zhou & Shaobin Shi, 2021. "Fiscal Policy Dilemma in Resolving Agricultural Risks: Evidence from China’s Agricultural Insurance Subsidy Pilot," IJERPH, MDPI, vol. 18(14), pages 1-11, July.
    5. Lana Awada & Peter W. B. Phillips, 2021. "The distribution of returns from land efficiency improvement in multistage production systems," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(1), pages 73-92, March.
    6. Zhifeng Zhang & Haodong Xu & Shuangshuang Shan & Qingzhi Liu & Yuqi Lu, 2022. "Whether the Agricultural Insurance Policy Achieves Green Income Growth—Evidence from the Implementation of China’s Total Cost Insurance Pilot Program," IJERPH, MDPI, vol. 19(2), pages 1-20, January.
    7. Fabio G Santeramo, 2019. "I Learn, You Learn, We Gain Experience in Crop Insurance Markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(2), pages 284-304, June.
    8. Taoyong Su & Yuzhu Yu & Yongheng Chen & Jian Zhang, 2019. "The Experience, Dilemma, and Solutions of Sustainable Development of Inclusive Finance in Rural China: Based on the Perspective of Synergy," Sustainability, MDPI, vol. 11(21), pages 1-18, October.
    9. Mykel R Taylor & Glynn T Tonsor & Nicholas D Paulson & Brenna Ellison & Jonathan Coppess & Gary D Schnitkey, 2017. "Is it Good to Have Options? The 2014 Farm Bill Program Decisions," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 39(4), pages 533-546.
    10. Thomas Dudek & Eric R. Ulm & Ilan Noy, 2021. "Demand for Multi-Year Catastrophe Insurance Contracts: Experimental Evidence for Mitigating the Insurance Gap," CESifo Working Paper Series 9442, CESifo.
    11. Alexandre Gohin, 2019. "General Equilibrium Modelling of the Insurance Industry: U.S. Crop Insurance," Journal of Global Economic Analysis, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, vol. 4(2), pages 108-145, December.
    12. Gohin, Alexandre, 2018. "Lessons from the U.S. risk management instruments for the future CAP," 162nd Seminar, April 26-27, 2018, Budapest, Hungary 271965, European Association of Agricultural Economists.

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    More about this item

    Keywords

    crop insurance; farm subsidies; food prices; equilibrium displacement model;
    All these keywords.

    JEL classification:

    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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