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

It is well known that insurance market information asymmetry can cause socially excessive cropping of yield-risky land. We show that crop insurance subsidies can cause the same problem absent information failures. Using field-level yield data, we find an inversed U-shaped relationship between crop p...

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Bibliographic Details
Published in:Journal of agricultural and resource economics 2016-05, Vol.41 (2), p.247-265
Main Authors: Miao, Ruiqing, Hennessy, David A., Feng, Hongli
Format: Article
Language:English
Subjects:
Agricultural production
Agricultural subsidies
Agriculture
Cash
Conservation
copula
Crop economics
Crop insurance
Crop production
Farm economics
Farmers
Farmlands
Farms
Governors
Grasslands
Insurance premiums
Land use
Prices
Random variables
sodsaver
Subsidies
subsidy chasing
Wheat
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Summary:It is well known that insurance market information asymmetry can cause socially excessive cropping of yield-risky land. We show that crop insurance subsidies can cause the same problem absent information failures. Using field-level yield data, we find an inversed U-shaped relationship between crop prices and crop insurance subsidies' land-use impacts. For seventeen counties in the U.S. Prairie Pothole Region, simulations show that 0.05% to 3.3% (about 2,600 to 157,900 acres) of land under crop insurance would not have been converted from grassland had premium subsidies not existed. Land-use impacts of Sodsaver in the 2014 Farm Act are also quantified.
ISSN:1068-5502
2327-8285
DOI:10.22004/ag.econ.235189