IDEAS home Printed from https://ideas.repec.org/a/wly/apecpp/v48y2026i3p690-708.html

Routine Actuarial Adjustments Cut Taxpayer Cost in Subsidized Agricultural Insurance

Author

Listed:
  • Francis Tsiboe

Abstract

Government‐subsidized agricultural insurance plays a vital role in farm risk management but exposes taxpayers to substantial fiscal risk, intensifying debates over program efficiency and fiscal restraint. Using more than 3 million observations across 32 U.S. commodities from 2001 to 2024, this study evaluates how routine adjustments to rating parameters affect taxpayer costs. The results show that updating all ratemaking parameters reduces taxpayer expenditure by roughly 10% annually, while updating reference yields alone can generate savings of up to 15%. Although most states benefit, gains are uneven, underscoring the challenges of achieving actuarially and fiscally sound pricing.

Suggested Citation

  • Francis Tsiboe, 2026. "Routine Actuarial Adjustments Cut Taxpayer Cost in Subsidized Agricultural Insurance," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 48(3), pages 690-708, July.
    • Handle: RePEc:wly:apecpp:v:48:y:2026:i:3:p:690-708
    DOI: 10.1002/aepp.70052
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/aepp.70052
    Download Restriction: no
    File URL: https://libkey.io/10.1002/aepp.70052?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Taro Mieno & Cory G Walters & Lilyan E Fulginiti, 2018. "Input Use under Crop Insurance: The Role of Actual Production History," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(5), pages 1469-1485.
    2. Belasco, Eric J., 2020. "WAEA Presidential Address: Moving Agricultural Policy Forward: Or, There and Back Again," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 45(3), September.
    3. Joshua D. Woodard & Leslie J. Verteramo‐Chiu, 2017. "Efficiency Impacts of Utilizing Soil Data in the Pricing of the Federal Crop Insurance Program," American Journal of Agricultural Economics, John Wiley & Sons, vol. 99(3), pages 757-772, April.
    4. Joseph W. Glauber, 2013. "The Growth Of The Federal Crop Insurance Program, 1990--2011," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 482-488.
    5. Eunchun Park & B Wade Brorsen & Ardian Harri, 2019. "Using Bayesian Kriging for Spatial Smoothing in Crop Insurance Rating," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(1), pages 330-351.
    6. 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.
    7. Jisang Yu & Nathan P. Hendricks, 2020. "Input Use Decisions with Greater Information on Crop Conditions: Implications for Insurance Moral Hazard and the Environment," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 826-845, May.
    8. Keith H. Coble & Barry J. Barnett, 2013. "Why Do We Subsidize Crop Insurance?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 498-504.
    9. John C. Quiggin & Giannis Karagiannis & J. Stanton, 1993. "Crop Insurance And Crop Production: An Empirical Study Of Moral Hazard And Adverse Selection," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 37(2), pages 95-113, August.
    10. 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.
    11. Tsiboe, Francis & Turner, Dylan, 2023. "The crop insurance demand response to premium subsidies: Evidence from U.S. Agriculture," Food Policy, Elsevier, vol. 119(C).
    12. John K. Horowitz & Erik Lichtenberg, 1993. "Insurance, Moral Hazard, and Chemical Use in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 926-935.
    13. Joshua D. Woodard & Leslie J. Verteramo-Chiu, 2017. "Efficiency Impacts of Utilizing Soil Data in the Pricing of the Federal Crop Insurance Program," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 757-772.
    14. 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.
    15. Vincent H. Smith & Barry K. Goodwin, 1996. "Crop Insurance, Moral Hazard, and Agricultural Chemical Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 428-438.
    16. Barry K. Goodwin, 1993. "An Empirical Analysis of the Demand for Multiple Peril Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 425-434.
    17. Thomas O. Knight & Keith H. Coble, 1997. "Survey of U.S. Multiple Peril Crop Insurance Literature Since 1980," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 19(1), pages 128-156.
    18. Jerry R. Skees & Michael R. Reed, 1986. "Rate Making for Farm-Level Crop Insurance: Implications for Adverse Selection," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(3), pages 653-659.
    19. Woodard, Joshua D. & Sherrick, Bruce J. & Schnitkey, Gary D., 2011. "Actuarial Impacts of Loss Cost Ratio Ratemaking in U.S. Crop Insurance Programs," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(01), pages 1-18, April.
    20. Goodwin, Barry K., 1994. "Premium Rate Determination In The Federal Crop Insurance Program: What Do Averages Have To Say About Risk?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(2), pages 1-14, December.
    21. Ardian Harri & Keith H. Coble & Alan P. Ker & Barry J. Goodwin, 2011. "Relaxing Heteroscedasticity Assumptions in Area-Yield Crop Insurance Rating," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(3), pages 703-713.
    22. 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.
    23. Bulut, Harun & Hennessy, David A., 2021. "Estimating Elasticities Via Market Share Impacts for Crop Insurance Coverage Options," 2021 Annual Meeting, August 1-3, Austin, Texas 312738, Agricultural and Applied Economics Association.
    24. Yu Na Lee, 2021. "Does Aversion to Price Risk Drive Migration? Evidence from Rural Ethiopia," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(4), pages 1268-1293, August.
    25. Joseph W. Glauber, 2004. "Crop Insurance Reconsidered," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1179-1195.
    26. Yong Liu & A. Ford Ramsey, 2023. "Incorporating historical weather information in crop insurance rating," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(2), pages 546-575, March.
    27. Baldwin, Katherine & Turner, Dylan & Tsiboe, Francis, 2024. "Recent Developments in Ad Hoc Assistance Programs for Agricultural Producers," Economic Information Bulletin 347201, United States Department of Agriculture, Economic Research Service.
    28. Rejesus, Roderick M. & Coble, Keith H. & Miller, Mary France & Boyles, Ryan & Goodwin, Barry K & Knight, Thomas O., 2015. "Accounting for Weather Probabilities in Crop Insurance Rating," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), pages 1-19, May.
    29. Barry K. Goodwin & Ashley Hungerford, 2015. "Copula-Based Models of Systemic Risk in U.S. Agriculture: Implications for Crop Insurance and Reinsurance Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(3), pages 879-896.
    30. Carl H. Nelson, 1990. "The Influence of Distributional Assumptions on the Calculation of Crop Insurance Premia," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 12(1), pages 71-78.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paloch Suchato & Taro Mieno & Karina Schoengold & Timothy Foster, 2022. "The potential for moral hazard behavior in irrigation decisions under crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 53(2), pages 257-273, March.
    2. Tsiboe, Francis, 2025. "Routine Actuarial Adjustments Cut Taxpayer Cost in Subsidized Agricultural Insurance," ARPC Working Paper 386093, North Dakota State University.
    3. Sankalp Sharma & Cory G. Walters, 2020. "Influence of farm size and insured type on crop insurance returns," Agribusiness, John Wiley & Sons, Ltd., vol. 36(3), pages 440-452, June.
    4. Coleman, Jane A. & Shaik, Saleem, 2009. "Time-Varying Estimation of Crop Insurance Program in Altering North Dakota Farm Economic Structure," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49516, Agricultural and Applied Economics Association.
    5. Lubowski, Ruben N. & Bucholtz, Shawn & Claassen, Roger & Roberts, Michael J. & Cooper, Joseph C. & Gueorguieva, Anna & Johansson, Robert C., 2006. "Environmental Effects Of Agricultural Land-Use Change: The Role Of Economics And Policy," Economic Research Report 33591, United States Department of Agriculture, Economic Research Service.
    6. Woodard, Joshua D. & Chiu Verteramo, Leslie & Miller, Alyssa P., 2015. "Adaptation of U.S. Agricultural Production to Drought and Climate Change," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205903, Agricultural and Applied Economics Association.
    7. Xudong Rao & Yuehua Zhang, 2020. "Livestock insurance, moral hazard, and farmers’ decisions: a field experiment among hog farms in China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(1), pages 134-156, January.
    8. Jennifer Ifft & Margaret Jodlowski, 2024. "Farm heterogeneity and leveraging federal crop insurance for conservation practice adoption," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 46(2), pages 572-594, June.
    9. Yuehua Zhang & Ying Cao & H. Holly Wang, 2018. "Cheating? The Case of Producers’ Under‐Reporting Behavior in Hog Insurance in China," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 66(3), pages 489-510, September.
    10. Yu, Jisang & Smith, Aaron & Sumner, Daniel A., "undated". "The Effects of the Premium Subsidies in the U.S. Federal Crop Insurance Program on Crop Acreage," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236022, Agricultural and Applied Economics Association.
    11. Jisang Yu & Nathan P. Hendricks, 2020. "Input Use Decisions with Greater Information on Crop Conditions: Implications for Insurance Moral Hazard and the Environment," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 826-845, May.
    12. Glauber, Joseph W., 2017. "Agricultural insurance and the WTO:," IFPRI book chapters, in: Bouët, Antoine; Laborde Debucquet, David (ed.), Agriculture, development, and the global trading system: 2000– 2015, chapter 10, International Food Policy Research Institute (IFPRI).
    13. F. G. Santeramo & B. K. Goodwin & F. Adinolfi & F. Capitanio, 2016. "Farmer Participation, Entry and Exit Decisions in the Italian Crop Insurance Programme," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(3), pages 639-657, September.
    14. Francis Tsiboe & Jesse Tack, 2022. "Utilizing Topographic and Soil Features to Improve Rating for Farm‐Level Insurance Products," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 52-69, January.
    15. He, Juan & Zheng, Xiaoyong & Rejesus, Roderick M. & Yorobe Jr., Jose M., . "Moral hazard and adverse selection effects of cost-of-production crop insurance: evidence from the Philippines," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 63(01).
    16. Fabio G Santeramo, 2019. "I Learn, You Learn, We Gain Experience in Crop Insurance Markets," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(2), pages 284-304, June.
    17. Rao, Xudong & Cai, Qingyin & Zhang, Yuehua, 2023. "Moral Hazard in Agricultural Insurance – Evidence from A Non-Voluntary Sow Insurance Program in China," 2023 Annual Meeting, July 23-25, Washington D.C. 335431, Agricultural and Applied Economics Association.
    18. Makki Shiva S. & Somwaru Agapi L., 2007. "Assessing Adverse Selection in Crop Insurance Markets: An Application of Parametric and Nonparametric Methods," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 2(1), pages 1-22, May.
    19. Sloggy, Matthew R. & Hrozencik, R. Aaron & Manning, Dale T. & Goemans, Chris G. & Claassen, Roger L., 2025. "Insurance and extraction incentives in a common pool resource: Evidence from groundwater use in the high plains," Journal of Environmental Economics and Management, Elsevier, vol. 130(C).
    20. repec:ags:aaea22:335431 is not listed on IDEAS
    21. Shaik, Saleem & Atwood, Joseph A., 2002. "Optional Unit Policy In Crop Insurance," 2002 Annual meeting, July 28-31, Long Beach, CA 19741, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:apecpp:v:48:y:2026:i:3:p:690-708. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1002/(ISSN)2040-5804 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.