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Effects of the 2014 Farm Bill Policies on Cotton Production

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  • Devadoss, Stephen
  • Luckstead, Jeff

Abstract

We develop a model for a representative risk-averse cotton farmer to analyze the impact of crop insurance policies (Revenue Protection [RP], Yield Protection, Stacked Income Protection Plan [STAX], and Supplemental Coverage Option [SCO]). The model is calibrated and numerically optimized to quantify the effects of different insurance policy combinations on input use (moral hazard), insurance coverage levels, premiums, and certainty equivalent. When the farmer elects only RP, the optimal coverage rate is 80%. Under RP and STAX, the optimal RP coverage rate is 70% and the STAX coverage rate is 90%. RP and STAX is the optimal policy combination based on certainty equivalents. The RP and SCO combination has the lowest impact of input use.

Suggested Citation

  • Devadoss, Stephen & Luckstead, Jeff, . "Effects of the 2014 Farm Bill Policies on Cotton Production," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 50(2).
    • Handle: RePEc:ags:joaaec:355560
    DOI: 10.22004/ag.econ.355560
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    References listed on IDEAS

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    1. Moschini, Giancarlo & Hennessy, David A., 2001. "Uncertainty, risk aversion, and risk management for agricultural producers," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153, Elsevier.
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