Abstract
AbstractIn this research, we analyze the economic effects across various crop insurance subsidy and policy scenarios to determine producer insurance choice response, total premium and subsidy payments and study their economic implications on dryland corn, soybean, and winter wheat producers. We rely on the expected utility maximization framework to rank policy combination sets that are available to a typical producer to analyze the impacts of crop insurance subsidy changes and elimination of certain insurance policies across the three crops. Several scenarios were analyzed across subsidy and policy options and were found to have noticeably different farmer behavioral responses and economic implications.
Highlights
Crop insurance is of considerable importance to the U.S agricultural sector and from a government spending perspective
Support for the crop insurance program from the agricultural industry is widespread, as demonstrated by a letter sent by the producer groups, agricultural finance organizations, insurance industry groups, and others urging U.S lawmakers to make no significant changes as a part of a new farm bill (Letter to Congress, 2018)
Ranking risky alternatives To analyze the impacts of crop insurance subsidy changes and elimination of certain insurance policies across our three crops, we rely on expected net returns (ENR) to rank policy combination sets that are available to a typical producer
Summary
Crop insurance is of considerable importance to the U.S agricultural sector and from a government spending perspective. Bekkerman, Belasco, and Smith (2018) further stress that farms in the bottom 80% of crop sales receive about the same total amounts of agricultural risk coverage payments, price loss coverage payments, and crop insurance subsidies as farms in the top 2%. This implies that placing more stringent restrictions on existing crop insurance subsidy rates would primarily affect the top fraction of farm businesses and result in significant taxpayer savings (Bekkerman, Belasco, and Smith, 2018). The resulting decisions will impact their economic returns in the face of production variability, and affect the taxpayer cost to subsidize such programs
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