Insurance Subsidies, Technological Change, and Yield Resiliency in Agriculture

Abstract

Innovation in the agricultural sector will determine our ability to reduce food insecurity and feed nine billion people by 2050. Concomitantly, most of the world's agricultural crop production is produced under heavily subsidized insurance. Changes in food security will be largely driven by the nexus of innovation, climate change, and the policy institutions under which production agriculture operates. In the United States, crop insurance subsidies increased from 30% to 60% between 1994 and 2000, bringing about a significant increase in program participation. We use this increase as a natural experiment (event) to empirically estimate the impact of insurance subsidies on rates of technological change and measures of yield resiliency in corn (maize) yields. Our event results indicate that subsidies caused an increase in the rates of technological change and, more surprisingly, an increase in yield resiliency measures. However, point identification fails if there exist any confounding variables. Therefore, we use the spatial heterogeneity in our estimated event parameters to identify causal effects from three sources: introduction of genetically modified seeds, changing climate, and insurance subsidies themselves. Quite interestingly, the increase in the rates of technological change dissipates and the yield resiliency effect is reversed (consistent with theory). Furthermore, we find that the positive effects of genetically modified seeds dominate the effects from both changing climate and increased subsidies.