Efficiency Costs of Subsidy Rules for Crop Insurance

Participation in federal crop insurance programs has been encouraged through premium subsidies. The current subsidy depends on contract features as well as coverage levels. This type of subsidy rule causes farmers to choose contract designs and coverages that are not efficient for managing risk, in...

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Bibliographic Details
Published in:Journal of agricultural and resource economics 2003-04, Vol.28 (1), p.116-137
Main Authors: Wang, H. Holly, Hanson, Steven D., Black, J. Roy
Format: Article
Language:English
Subjects:
Agricultural production
Agricultural subsidies
Agriculture
Corn
Costs
Crop economics
Crop insurance
Crops
Design optimization
Design specifications
Efficiency
Expected utility
Farmers
Farms
Futures
Harvest
Hedging
Income redistribution
Insurance coverage
Insurance management
Insurance premiums
Revenue
Risk management
Subsidies
subsidy
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Summary:Participation in federal crop insurance programs has been encouraged through premium subsidies. The current subsidy depends on contract features as well as coverage levels. This type of subsidy rule causes farmers to choose contract designs and coverages that are not efficient for managing risk, in order to capture subsidy. Farmers are found to be as well off with a flat subsidy that is up to 25% less than the value of the current regressive proportional subsidy.
ISSN:1068-5502
2327-8285
DOI:10.22004/ag.econ.30717