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Effects of Crop Insurance Subsidies and Sodsaver on Land Use Change, The

Author

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  • Ruiqing Miao
  • David A. Hennessy
  • Hongli Feng

Abstract

There have long been concerns that federal crop insurance subsidies may significantly impact land use decisions. It is well known that classical insurance market information asymmetry problems can lead to a social excess of risky land entering crop production. We provide a conceptual model to show that the problem will arise absent any information failures. This is because the subsidy is (a) proportional to acres planted, and (b) greatest for the most production risky land. Using field-level yield data, we follow this observation through to establish the implications of subsidies for the extent of crop production, with particular emphasis on the US Prairie Pothole Region, where cropland growth is likely to have marked adverse environmental impacts. Simulation results show that up to 3% of land under federal crop insurance would have not been converted from grassland if there had been no crop insurance subsidies. Sodsaver, a provision that eliminates crop insurance and Supplemental Revenue Assistance payments in the first five years of crop production on new breakings, will reduce grassland conversion by 4.9% or less.

Suggested Citation

  • Ruiqing Miao & David A. Hennessy & Hongli Feng, 2012. "Effects of Crop Insurance Subsidies and Sodsaver on Land Use Change, The," Center for Agricultural and Rural Development (CARD) Publications 12-wp530, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  • Handle: RePEc:ias:cpaper:12-wp530
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    Cited by:

    1. Miao, Ruiqing & Khanna, Madhu, 2013. "Crop Insurance for Energy Grasses," 2013 AAEA: Crop Insurance and the Farm Bill Symposium, October 8-9, Louisville, KY 156936, Agricultural and Applied Economics Association.
    2. Miao, Ruiqing & Khanna, Madhu, 2015. "Costs of Meeting the Cellulosic Biofuel Mandate with an Energy Crop with Establishment Cost and Yield Risk: Implications for Policy," 2015 Conference, August 9-14, 2015, Milan, Italy 212458, International Association of Agricultural Economists.

    More about this item

    Keywords

    crop insurance; copula; grassland; land use; Sodsaver; Supplemental Revenue Assistance Payments JEL Code: Q15; Q18; Q24.;

    JEL classification:

    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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