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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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    Cited by:

    1. Chakir, Raja & Hardelin, Julien, 2014. "Crop Insurance and pesticide use in French agriculture: an empirical analysis," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 95(01), pages 25-50, March.
    2. Miao, Ruiqing & Khanna, Madhu, 2017. "Costs of meeting a cellulosic biofuel mandate with perennial energy crops: Implications for policy," Energy Economics, Elsevier, vol. 64(C), pages 321-334.
    3. Jeremy G. Weber & Nigel Key & Erik O’Donoghue, 2016. "Does Federal Crop Insurance Make Environmental Externalities from Agriculture Worse?," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(3), pages 707-742.
    4. Saenz, Mariana & Thompson, Eric, 2017. "Gender and Policy Roles in Farm Household Diversification in Zambia," World Development, Elsevier, vol. 89(C), pages 152-169.
    5. Dimitar Nikolov & Sergio Gomez-y-Paloma & Minka Chopeva & Marianne Lefebvre, 2014. "Main Factors of the Development and Attractiveness of the Insurance Market for the Agricultural Companies," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 99-121.
    6. Olen, Beau & Wu, Junjie, 2013. "Supply of Insurance for Specialty Crops and its Effect on Yield and Acreage," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150787, Agricultural and Applied Economics Association.
    7. Jennifer Ifft & Todd H. Kuethe & Gregory Lyons & Alexander Schultz & John Y. Zhu, 2024. "Crop insurance's impact on commercial bank loan volumes: Theory and evidence," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(1), pages 318-337, March.
    8. Biram, Hunter D. & Tack, Jesse & Nehring, Richard F., 2022. "Does Crop Insurance Participation Impact Quality-Adjusted Pesticide Usage?," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322136, Agricultural and Applied Economics Association.
    9. Zhang, Yihao & Wu, Ya & Yan, Jianzhong & Peng, Ting, 2022. "How does rural labor migration affect crop diversification for adapting to climate change in the Hehuang Valley, Tibetan Plateau?," Land Use Policy, Elsevier, vol. 113(C).
    10. Chakir, Raja & Hardelin, Julien, 2011. "Hail Insurance and Pesticide use in French agriculture: an empirical analysis of multiple risks management," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114312, European Association of Agricultural Economists.
    11. Rachael D. Garrett & Meredith Niles & Juliana Gil & Philip Dy & Julio Reis & Judson Valentim, 2017. "Policies for Reintegrating Crop and Livestock Systems: A Comparative Analysis," Sustainability, MDPI, vol. 9(3), pages 1-22, March.
    12. Prasenjit N. Ghosh & Ruiqing Miao & Emir Malikov, 2023. "Crop insurance premium subsidy and irrigation water withdrawals in the western United States," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 968-992, October.
    13. Jiguang Zhu & Yaru Sun & Yunxing Song, 2022. "Household Livelihood Strategy Changes and Agricultural Diversification: A Correlation and Mechanism Analysis Based on Data from the China Family Panel," Land, MDPI, vol. 11(5), pages 1-18, May.
    14. 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.
    15. Zhihui Chai & Xiaoxia Zhang, 2023. "The Impact of Agricultural Insurance on Planting Structure Adjustment—An Empirical Study from Inner Mongolia Autonomous Region, China," Agriculture, MDPI, vol. 14(1), pages 1-21, December.
    16. Massigoge, Ignacio & Carcedo, Ana & de Borja Reis, Andre Froes & Mitchell, Clay & Day, Scott & Oliverio, Joaquin & Truong, Sandra H. & McCormick, Ryan F. & Rotundo, Jose & Lira, Sara & Ciampitti, Igna, 2023. "Exploring avenues for agricultural intensification: A case study for maize-soybean in the Southern US region," Agricultural Systems, Elsevier, vol. 204(C).
    17. Agnieszka Kurdyś-Kujawska & Agnieszka Sompolska-Rzechuła & Joanna Pawłowska-Tyszko & Michał Soliwoda, 2021. "Crop Insurance, Land Productivity and the Environment: A Way forward to a Better Understanding," Agriculture, MDPI, vol. 11(11), pages 1-17, November.
    18. Burns, Christopher & Prager, Daniel, "undated". "Do Direct Payments and Crop Insurance Influence Commercial Farm Survival and Decisions to Expand?," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235693, Agricultural and Applied Economics Association.
    19. Ethan Ligon, 2011. "Supply and Effects of Specialty Crop Insurance," NBER Chapters, in: The Intended and Unintended Effects of US Agricultural and Biotechnology Policies, pages 113-142, National Bureau of Economic Research, Inc.
    20. Bauman, Allison & Jablonski, Becca B. R. & Key, Nigel D. & Hadrich, Joleen C., 2022. "Land tenure and profitability outcomes for U.S. beginning farmers and ranchers," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322233, Agricultural and Applied Economics Association.
    21. Miao, Ruiqing & Khanna, Madhu, 2015. "Costs of Meeting the Cellulosic Biofuel Mandate with an Energy Crop with Establishment Cost and Yield Risk: Implications for Policy," 2015 Conference, August 9-14, 2015, Milan, Italy 212458, International Association of Agricultural Economists.
    22. Ifft, Jennifer & Kuethe, Todd & Morehart, Mitch, 2015. "Does Federal Crop Insurance lead to higher farm debt use? Evidence from the Agricultural Resource Management Survey," Working Papers 250011, Cornell University, Department of Applied Economics and Management.

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