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Budgetary and Producer Welfare Effects of Revenue Insurance

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  • David A. Hennessy
  • Bruce A. Babcock
  • Dermot J. Hayes

Abstract

The efficiency of redistribution of government-provided revenue insurance programs is compared with the efficiency of the 1990 farm program. The results indicate that revenue insurance would be more efficient because it would provide subsidies when and only when revenue is low and marginal utility is high, and it works on the component of the objective function (revenue) that is of greatest relevance to producers. Simulation results indicate that a revenue insurance scheme that guarantees 75% of expected revenue to risk-averse producers could provide approximately the same level of benefits as the 1990 program, at as little as one-fourth the cost. Copyright 1997, Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:ajagec:v:79:y:1997:i:3:p:1024-1034
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    1. Julian M. Alston & Brian H. Hurd, 1990. "Some Neglected Social Costs of Government Spending in Farm Programs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(1), pages 149-156.
    2. Bruce A. Babcock & David A. Hennessy, 1996. "Input Demand under Yield and Revenue Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 416-427.
    3. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    4. Vukina, Tomislav & Li, Dong-feng & Holthausen, Duncan M., 1996. "Hedging With Crop Yield Insurance Futures," 1996 Conference (40th), February 11-16, 1996, Melbourne, Australia 156579, Australian Agricultural and Resource Economics Society.
    5. Calum G. Turvey, 1992. "Contingent Claim Pricing Models Implied by Agricultural Stabilization and Insurance Policies," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 40(2), pages 183-198, July.
    6. Rulon D. Pope & Richard E. Just, 1991. "On Testing the Structure of Risk Preferences in Agricultural Supply Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 73(3), pages 743-748.
    7. Allan W. Gray & James W. Richardson & Jackie McClaskey, 1995. "Farm-Level Impacts of Revenue Assurance," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 17(2), pages 171-183.
    8. Tomislav Vukina & Dong-feng Li & Duncan M. Holthausen, 1996. "Hedging with Crop Yield Futures: A Mean-Variance Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 1015-1025.
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