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

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.