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Don’t bet the Farm on Crop Insurance Subsidies

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  • Yeterian, Marc
  • Grislain-Letrémy, Céline
  • Villeneuve, Bertrand

Abstract

Crop insurance is one of the most important tools that farmers have to protect themselves against climate-related risks. Yet and despite being heavily subsidized, insurance uptake in France remains extremely low. The goal of this paper is twofold ; first, we explain this paradox by analyzing the heterogeneous benefits and adverse effects of taking up crop insurance, and second, we provide concrete policy recommendations to increase insurance uptake in a welfare-maximizing way. Using an original micro-level panel of 17 000 French farmers over 20 years, we first use a moments-based regression to identify the local average effects (LATE) of insurance on expected revenues and variance, before investigating the factors that might cause heterogeneity in these effects, both observables through interaction terms and unobservables through a marginal treatment effect design. We conclude that insurance subsidies have very little impact on crop insurance demand, especially for those who would benefit the most, and suggest other less costly and more efficient ways to increase insurance uptake such as information campaigns.

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Handle: RePEc:ags:aes024:355337
DOI: 10.22004/ag.econ.355337
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