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Did the Federal Crop Insurance Reform Act Alter Farm Enterprise Diversification?

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  • Erik J. O’Donoghue
  • Michael J. Roberts
  • Nigel Key

Abstract

We estimate how much United States farms changed enterprise diversification in response to a marked increase in crop insurance coverage brought about by the 1994 Federal Crop Insurance Reform Act, which substantially increased insurance subsidies. The analysis exploits farm‐level panel census data to compare farm‐specific changes in enterprise diversification over time. By examining diversification decisions of the same farms over time, we control for time‐invariant unobserved individual heterogeneity. We then use pooled cross‐sectional data from the United States Department of Agriculture (USDA) Agricultural Resource Management Survey to estimate the relationship between farm diversification and average returns. We find that the insurance subsidies caused a modest increase in enterprise specialisation and production efficiency. Estimated efficiency gains are far less than the subsidies.

Suggested Citation

  • Erik J. O’Donoghue & Michael J. Roberts & Nigel Key, 2009. "Did the Federal Crop Insurance Reform Act Alter Farm Enterprise Diversification?," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(1), pages 80-104, February.
    • Handle: RePEc:bla:jageco:v:60:y:2009:i:1:p:80-104
    DOI: 10.1111/j.1477-9552.2008.00166.x
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    References listed on IDEAS

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