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The Environmental Impacts of Subsidized Crop Insurance

Author

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  • LaFrance, Jeffrey T.
  • Shimshack, Jay P.
  • Wu, Steven Y.

Abstract

A partial equilibrium model of stochastic crop production is used to analyze the environmental impacts of popular subsidized crop insurance programs. Land use is unchanged only when an actuarially fair, perfectly separating insurance contract is offered. For the more typical pooling equilibrium contracts, however, land with a minimum quality that is strictly lower than the minimum quality without insurance will be added to production. In such cases, the environment will be adversely effected. If economically marginal land is also environmentally marginal, pooling crop insurance policies disproportionately contribute to the degradation of the environment. Popular subsidies merely exacerbate the problem.

Suggested Citation

  • LaFrance, Jeffrey T. & Shimshack, Jay P. & Wu, Steven Y., 2001. "The Environmental Impacts of Subsidized Crop Insurance," CUDARE Working Papers 25082, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:25082
    DOI: 10.22004/ag.econ.25082
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    References listed on IDEAS

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    1. Vincent H. Smith & Barry K. Goodwin, 1996. "Crop Insurance, Moral Hazard, and Agricultural Chemical Use," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 428-438.
    2. Thomas O. Knight & Keith H. Coble, 1997. "Survey of U.S. Multiple Peril Crop Insurance Literature Since 1980," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 19(1), pages 128-156.
    3. Calm G. Turvey, 1992. "An Economic Analysis of Alternative Farm Revenue Insurance Policies," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 40(3), pages 403-426, November.
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