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Efficiency Costs of Subsidy Rules for Crop Insurance

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  • Wang, H. Holly
  • Hanson, Steven D.
  • Black, J. Roy

Abstract

Participation in federal crop insurance programs has been encouraged through premium subsidies. The current subsidy depends on contract features as well as coverage levels. This type of subsidy rule causes farmers to choose contract designs and coverages that are not efficient for managing risk, in order to capture subsidy. Farmers are found to be as well off with a flat subsidy that is up to 25% less than the value of the current regressive proportional subsidy.

Suggested Citation

  • Wang, H. Holly & Hanson, Steven D. & Black, J. Roy, 2003. "Efficiency Costs of Subsidy Rules for Crop Insurance," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 28(1), pages 1-22, April.
    • Handle: RePEc:ags:jlaare:30717
    DOI: 10.22004/ag.econ.30717
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    References listed on IDEAS

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    1. Coble, Keith H. & Heifner, Richard G. & Zuniga, Manuel, 2000. "Implications Of Crop Yield And Revenue Insurance For Producer Hedging," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 25(2), pages 1-21, December.
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    4. Richard E. Just & Linda Calvin & John Quiggin, 1999. "Adverse Selection in Crop Insurance: Actuarial and Asymmetric Information Incentives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 834-849.
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    7. Keith H. Coble & Thomas O. Knight & Rulon D. Pope & Jeffery R. Williams, 1997. "An Expected-Indemnity Approach to the Measurement of Moral Hazard in Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 216-226.
    8. David A. Hennessy & Bruce A. Babcock & Dermot J. Hayes, 1997. "Budgetary and Producer Welfare Effects of Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 1024-1034.
    9. Fackler, Paul L., 1986. "Futures Price Volatility: Modeling Non-Constant Variance," 1986 Annual Meeting, July 27-30, Reno, Nevada 278172, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    Cited by:

    1. Lee, Dong Won & Diersen, Matthew A. & Janssen, Larry & Gustafson, Cole R., 2006. "Premium Subsidy Changes and Demand for Crop Insurance," 2006 Agricultural and Rural Finance Markets in Transition, October 2-3, 2006, Washington, DC 133086, Regional Research Committee NC-1014: Agricultural and Rural Finance Markets in Transition.
    2. Chaffin, Ben, 2009. "Crop Yield and Revenue Insurance: Choosing Between Policies That Trigger On Farm vs. County Indexes," Graduate Research Master's Degree Plan B Papers 48303, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    3. Azzam, Azzeddine & Walters, Cory & Kaus, Taylor, 2021. "Does subsidized crop insurance affect farm industry structure? Lessons from the U.S," Journal of Policy Modeling, Elsevier, vol. 43(6), pages 1167-1180.
    4. Makus, Larry D. & Wang, H. Holly & Chen, Xiaomei, 2003. "Evaluating Risk Management Strategies For Non-Irrigated Small Grain Producers," 2003 Annual meeting, July 27-30, Montreal, Canada 22257, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Delbridge, Timothy A. & King, Robert P., 2016. "How Important is the T-Yield? An Analysis of Reforms to Organic Crop Insurance," Staff Papers 244732, University of Minnesota, Department of Applied Economics.
    6. Chen, Xiaomei & Wang, H. Holly & Makus, Larry D., 2007. "Production Risk and Crop Insurance Effectiveness: Organic Versus Conventional Apples," SCC-76 Meeting, 2007, March 15-17, Gulf Shores, Alabama 9381, SCC-76: Economics and Management of Risk in Agriculture and Natural Resources.
    7. H. Holly Wang & Lu Liu & David L. Ortega & Yu Jiang & Qiujie Zheng, 2020. "Are smallholder farmers willing to pay for different types of crop insurance? An application of labelled choice experiments to Chinese corn growers," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(1), pages 86-110, January.

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