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Input Demand Under Yield and Revenue Insurance

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  • Babcock, Bruce A.
  • Hennessy, David A.

Abstract

Previous studies disagree on the effects of insurance on fertilizer application rates. The effect of increased fertilizer on the probability of low yields primarily determines whether fertilizer and insurance are substitutes or complements. The authors estimate conditional distributions of corn yields to determine if the technical relationship between yields and fertilizer supports the hypothesis that insurance increases optimal application rates. Their 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.

Suggested Citation

  • Babcock, Bruce A. & Hennessy, David A., 1996. "Input Demand Under Yield and Revenue Insurance," Staff General Research Papers Archive 794, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:794
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