The Impact of Crop Insurance Premium Subsidies on Wetland Easement Program Participation

Premium subsidies in crop insurance can expand production on marginal lands, as they change the expected profitability of crop production. As agricultural production expands, participation in set-aside conservation programs may be diminished. This paper examines the effect of crop insurance premium subsidies on enrollment in the Wetlands Reserve Program (WRP), one of the primary wetland restoration program in the United States. We focus on the Mississippi River Basin, where a large share of WRP restorations are concentrated. To address potential endogeneity between producer-received premium subsidies and WRP enrollment, we employ an instrumental variable approach, exploiting variation in federally determined subsidy rate changes interacted with insurance participation prior to the sample period. We find that while higher premium subsidies reduce enrollment in WRP, the magnitude of the marginal effect is relatively small, suggesting that there is only limited crowd-out effect on WRP participation.