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Average Crop Revenue Election (ACRE) Program or Traditional Government Payment Programs: What Factors Matter?

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  • Chen, Yunguang
  • Wang, H. Holly
  • Patrick, George F.

Abstract

Rankings of different risk management portfolios including Average Crop Revenue Election (ACRE), traditional government payment programs, crop insurance and hedging in futures; and optimal choices of insurance coverage levels and hedge ratios are evaluated for a representative central Indiana corn farm, using Monte Carlo simulation and optimization of expected utilities. The changes of preference between ACRE and traditional government programs under comprehensive scenarios of price and yield risks are studied. Also, Interactions between ACRE and other risk management instruments are examined, and government costs and risk management efficiencies between ACRE and traditional government programs are compared. The results show a strong preference of ACRE for the representative central Indiana corn farm in 2009, due to high ACRE guarantee price and expected drop in corn price from 2008 level. Even if the farm faces weak dependence between farm and aggregate yield, the risk could not offset the addition value ACRE could provide for this year. Also, it is found that there are synergistic effects between ACRE and two individual crop insurance plans but antagonistic effects between ACRE and group insurance plans. ACRE is more efficient than traditional government programs in terms of expected program costs.

Suggested Citation

  • Chen, Yunguang & Wang, H. Holly & Patrick, George F., 2010. "Average Crop Revenue Election (ACRE) Program or Traditional Government Payment Programs: What Factors Matter?," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61490, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea10:61490
    DOI: 10.22004/ag.econ.61490
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    References listed on IDEAS

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    1. 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.
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    1. Mitchell, Paul D. & Rejesus, Roderick M. & Coble, Keith H. & Knight, Thomas O., 2011. "Analyzing Farmer Participation Intentions and Enrollment Rates for the Average Crop Revenue Election (ACRE) Program," Staff Paper Series 560, University of Wisconsin, Agricultural and Applied Economics.
    2. Mitchell, Paul D. & Rejesus, Roderick M. & Coble, Keith H. & Knight, Thomas O., 2010. "A Real Options Framework for Analyzing Program Participation as Human Capital Investments: The Case of the Average Crop Revenue Election (ACRE) Program," Staff Papers 92896, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.

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