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Input Demand Under Yield and Revenue Insurance

The question of how insurance programs affect agricultural input use is commanding increasing attention. Previous studies disagree on the likely effects of insurance on fertilizer application rates. Whether insurance is a complement or a substitute for fertilizer depends, in part, on whether the probability of low yields is positively or negatively affected by increased fertilizer rates. This study uses field-level data measuring the response of corn yields to nitrogen fertilizer to determine if the technical relationship between yield and nitrogen fertilizer supports the hypothesis that crop insurance or revenue insurance could induce increased application rates. Our results indicate no support for this hypothesis. At all nitrogen fertilizer rates and reasonable levels of risk aversion, nitrogen fertilizer and insurance are substitutes, suggesting that those who purchase insurance are likely to decrease nitrogen fertilizer applications.

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Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 94-wp127.

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Date of creation: Dec 1994
Handle: RePEc:ias:cpaper:94-wp127
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  1. Babcock, Bruce A. & Choi, E. Kwan & Feinerman, Eli, 1993. "Risk And Probability Premiums For Cara Utility Functions," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(01), July.
  2. John C. Quiggin & Giannis Karagiannis & J. Stanton, 1993. "Crop Insurance And Crop Production: An Empirical Study Of Moral Hazard And Adverse Selection," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 37(2), pages 95-113, 08.
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  4. Johnson, Stanley R. & Wolcott, Robert & Aradhyula, Satheesh V., 1990. "Coordinating Agricultural and Environmental Policies: Opportunities and Tradeoffs," Staff General Research Papers Archive 279, Iowa State University, Department of Economics.
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  8. Babcock, Bruce A. & Blackmer, Alfred M., 1992. "The Value Of Reducing Temporal Input Nonuniformities," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(02), December.
  9. Musser, Wesley N. & Tew, Bernard V., 1984. "Use of Biophysical Simulation in Production Economics," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 16(01), pages 77-86, July.
  10. John K. Horowitz & Erik Lichtenberg, 1993. "Insurance, Moral Hazard, and Chemical Use in Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(4), pages 926-935.
  11. Harvey Lapan & Giancarlo Moschini, 1994. "Futures Hedging Under Price, Basis, and Production Risk," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 465-477.
  12. Erik Lichtenberg & David Zilberman, 1986. "The Econometrics of Damage Control: Why Specification Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 261-273.
  13. Johnson, S R & Wolcott, Robert & Aradhyula, Satheesh V, 1990. "Coordinating Agricultural and Environmental Policies: Opportunities and Tradeoffs," American Economic Review, American Economic Association, vol. 80(2), pages 203-207, May.
  14. Black, Fischer, 1976. "The pricing of commodity contracts," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 167-179.
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