Can Crop Insurance Subsidies Incentivize Cover Cropping?

The potential for cover cropping to reduce the riskiness of row crop yields has led to interest in considering crop insurance premium subsidies as a mechanism to induce adoption. We develop an integrated framework that links an economic model with a biogeochemical model to analyze the incentives for a utility- maximizing farmer, with varying risk and time preferences, to adopt cover cropping across spatially heterogeneous counties in the rainfed region of the United States. We use this framework to examine the effects of increasing insurance premium subsidies linked to cover cropping on the level and spatial pattern of cover cropping and its implications for policy costs. Our results show that both without and with 20 insurance subsidy policy interventions, farmers do not have an incentive to adopt cover crops in the 21 Midwest. But crop insurance subsidies for cover cropping can be effective in incentivizing adoption 22 the Great Plains and southern states where premiums are higher and net costs of cover cropping lower. 23 We find that the actuarially fair reduction in insurance premiums for cover cropping would be about 24 $5-7 per acre per year in the Midwest, which is not enough to meet the costs of cover cropping, and 25 $25-40 per acre per year in the southern states and Great Plains. Additionally, we show that when crop 26 insurance is already heavily subsidized, additional subsidies linked to cover cropping do not 27 significantly affect the downside risk, which is already largely covered. Lastly, we show that crop 28 insurance subsidies alongside a uniform per-acre payment for cover cropping of $30 per acre can 29 incentivize some adoption in the Midwest by meeting cover cropping costs and monetizing the risk 30 reduction it provides.