Adversity and the Propensity to Fail: The Impact of Disaster Payments and Multiple Peril Crop Insurance on U.S. Farm Exit Rates
This paper investigates the effect of government-provided crop insurance on farm failure rates. By exploiting random variation in weather and the Federal Crop Insurance Reform Act of 1994, which mandated crop insurance coverage for the first time, I employ two natural experiments that identify the causal effect of disaster relief on farm failure rates. I examine the survival smoothing contribution of crop insurance by looking at the relative effect of disaster relief across two regimes, pre- and post-1994. Prior to 1994 ad hoc, ex post disaster payments were the primary form of disaster relief. Shortly after the 1994 Act virtually all disaster relief came through crop insurance indemnities. I find that disaster relief in the form of ad hoc disaster payments slightly reduces the average farm failure rate, while average farm failure rates increase under the crop insurance regime. The relative effect suggests that farm failure rates increase by 1.7 percentage points (about 30-percent) under the crop insurance regime. Excessively generous ad hoc disaster payments and moral hazard provide possible explanations for these findings. These findings suggest that government-provided crop insurance plays an important role in farmer risk management.
|Date of creation:||2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (414) 918-3190
Fax: (414) 276-3349
Web page: http://www.aaea.orgEmail:
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ags:aaea09:49569. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.