IDEAS home Printed from https://ideas.repec.org/p/ags/aaea25/361073.html
   My bibliography  Save this paper

The Impact of Crop Insurance Participation on Water Use Under Extreme Heat: Evidence from U.S. Agriculture

Author

Listed:
  • Alcantara, Reymark T.
  • Che, Yuyuan

Abstract

Risk has always been central to agriculture, and climate change has amplified production challenges like droughts and heatwaves. While tools such as irrigation and federally subsidized crop insurance help manage uncertainty, the impact of crop insurance on water resource use under extreme heat remains underexplored. This study investigates how crop insurance participation affects irrigation water use, particularly under varying heat conditions. Using a county-level panel dataset from 2008–2020 that combines crop-specific irrigation, insurance, and weather data across the United States, we apply fixed-effects and instrumental variable approaches. Results show that higher crop insurance participation is associated with increased total irrigation water use, driven primarily by surface water. Groundwater use shows weaker and less consistent responses. Additionally, the effect of crop insurance on water use diminishes as heat intensity increases. Our findings reveal a trade-off between risk management and water sustainability, suggesting that integrating conservation incentives into crop insurance programs could help align climate risk mitigation with long-term resource goals.

Suggested Citation

  • Alcantara, Reymark T. & Che, Yuyuan, 2025. "The Impact of Crop Insurance Participation on Water Use Under Extreme Heat: Evidence from U.S. Agriculture," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 361073, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea25:361073
    DOI: 10.22004/ag.econ.361073
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/361073/files/75295_94118_105300_Insurance_and_irrigation_RTA_YC_JUNE17_merged.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.361073?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. Arthur Lewbel, 2012. "Using Heteroscedasticity to Identify and Estimate Mismeasured and Endogenous Regressor Models," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 30(1), pages 67-80.
    2. 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.
    3. Ruixue Wang & Roderick M Rejesus & Serkan Aglasan, 2021. "Warming Temperatures, Yield Risk and Crop Insurance Participation [Federal crop insurance and the disincentive to adapt to extreme heat]," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 48(5), pages 1109-1131.
    4. Francis Annan & Wolfram Schlenker, 2015. "Federal Crop Insurance and the Disincentive to Adapt to Extreme Heat," American Economic Review, American Economic Association, vol. 105(5), pages 262-266, May.
    5. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2011. "Robust Inference With Multiway Clustering," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(2), pages 238-249, April.
    6. 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.
    7. Jisang Yu & Aaron Smith & Daniel A Sumner, 2018. "Effects of Crop Insurance Premium Subsidies on Crop Acreage," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(1), pages 91-114.
    8. Kayla A. Cotterman & Anthony D. Kendall & Bruno Basso & David W. Hyndman, 2018. "Groundwater depletion and climate change: future prospects of crop production in the Central High Plains Aquifer," Climatic Change, Springer, vol. 146(1), pages 187-200, January.
    9. Arnald Puy & Emanuele Borgonovo & Samuele Lo Piano & Simon A. Levin & Andrea Saltelli, 2021. "Irrigated areas drive irrigation water withdrawals," Nature Communications, Nature, vol. 12(1), pages 1-12, December.
    10. Karina Schoengold & Ya Ding & Russell Headlee, 2015. "The Impact of AD HOC Disaster and Crop Insurance Programs on the Use of Risk-Reducing Conservation Tillage Practices," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(3), pages 897-919.
    11. Lu, Xun & Che, Yuyuan & Rejesus, Roderick M. & Goodwin, Barry K. & Ghosh, Sujit K. & Paudel, Jayash, 2023. "Unintended environmental benefits of crop insurance: Nitrogen and phosphorus in water bodies," Ecological Economics, Elsevier, vol. 204(PA).
    12. Connor, Lawson & Katchova, Ani L., 2020. "Crop Insurance Participation Rates and Asymmetric Effects on U.S. Corn and Soybean Yield Risk," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 45(01), January.
    13. Reyes, Julian & Elias, Emile & Haacker, Erin & Kremen, Amy & Parker, Lauren & Rottler, Caitlin, 2020. "Assessing agricultural risk management using historic crop insurance loss data over the ogallala aquifer," Agricultural Water Management, Elsevier, vol. 232(C).
    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. Che, Yuyuan & Aglasan, Serkan & Burchfield, Emily K. & Rejesus, Roderick M., 2025. "The Impact of Crop Insurance Participation on Landscape Complexity," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 360700, Agricultural and Applied Economics Association.
    2. Liu, Ziheng & Lu, Qinan, 2023. "Ozone stress and crop harvesting failure: Evidence from US food production," Food Policy, Elsevier, vol. 121(C).
    3. Lawson Connor & Roderick M. Rejesus & Mahmut Yasar, 2022. "Crop insurance participation and cover crop use: Evidence from Indiana county‐level data," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(4), pages 2181-2208, December.
    4. Lu, Xun & Che, Yuyuan & Rejesus, Roderick M. & Goodwin, Barry K. & Ghosh, Sujit K. & Paudel, Jayash, 2023. "Unintended environmental benefits of crop insurance: Nitrogen and phosphorus in water bodies," Ecological Economics, Elsevier, vol. 204(PA).
    5. Tsiboe, Francis & Turner, Dylan, 2023. "Econometric identification of crop insurance participation," Agricultural and Resource Economics Review, Cambridge University Press, vol. 52(3), pages 476-497, December.
    6. Daniel Cooley & Steven M. Smith, 2022. "Center Pivot Irrigation Systems as a Form of Drought Risk Mitigation in Humid Regions," NBER Chapters, in: American Agriculture, Water Resources, and Climate Change, pages 135-171, National Bureau of Economic Research, Inc.
    7. repec:ags:aaea22:343758 is not listed on IDEAS
    8. Céline Grislain-Letrémy & Bertrand Villeneuve & Marc Yeterian, 2024. "Don't bet the Farm on Crop Insurance Subsidies: A Marginal Treatment Effect Analysis of French Farms," Working papers 956, Banque de France.
    9. 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.
    10. Liu, Ziheng, 2025. "CO2-driven crop comparative advantage and planting decision: Evidence from US cropland," Food Policy, Elsevier, vol. 130(C).
    11. Chemeris, Anna & Liu, Yong & Ker, Alan P., 2022. "Insurance subsidies, climate change, and innovation: Implications for crop yield resiliency," Food Policy, Elsevier, vol. 108(C).
    12. Tsiboe, Francis & Turner, Dylan, 2023. "The crop insurance demand response to premium subsidies: Evidence from U.S. Agriculture," Food Policy, Elsevier, vol. 119(C).
    13. 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.
    14. Sunjae Won & Roderick M. Rejesus & Barry K. Goodwin & Serkan Aglasan, 2024. "Understanding the effect of cover crop use on prevented planting losses," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(2), pages 659-683, March.
    15. 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).
    16. Zhang, Jingfang & Malikov, Emir & Miao, Ruiqing & Ghosh, Prasenjit N., 2024. "Geography of Climate Change Adaptation in U.S. Agriculture: Evidence from Spatially Varying Long-Differences Approach," 2024 Annual Meeting, July 28-30, New Orleans, LA 343758, Agricultural and Applied Economics Association.
    17. Aglasan, Serkan & Rejesus, Roderick M., 2022. "Do Cover Crops Reduce Production Risk?," 2022 Annual Meeting, July 31-August 2, Anaheim, California 324776, Agricultural and Applied Economics Association.
    18. 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.
    19. Serkan Aglasan & Roderick M. Rejesus & Stephen Hagen & William Salas, 2024. "Cover crops, crop insurance losses, and resilience to extreme weather events," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(4), pages 1410-1434, August.
    20. Leon Zolotoy & Don O’Sullivan & Keke Song, 2021. "The Role of Ethical Standards in the Relationship Between Religious Social Norms and M&A Announcement Returns," Journal of Business Ethics, Springer, vol. 170(4), pages 721-742, May.
    21. Yuqiang Gao & Yongkang Shu & Hongjie Cao & Shuting Zhou & Shaobin Shi, 2021. "Fiscal Policy Dilemma in Resolving Agricultural Risks: Evidence from China’s Agricultural Insurance Subsidy Pilot," IJERPH, MDPI, vol. 18(14), pages 1-11, July.

    More about this item

    Keywords

    ;

    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:ags:aaea25:361073. 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: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    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.