The Impact of AD HOC Disaster and Crop Insurance Programs on the Use of Risk‐Reducing Conservation Tillage Practices

Abstract

AbstractThe paper estimates the impacts of risk‐reducing government programs on the use of conservation tillage (no‐till and other conservation tillage) practices in agriculture. Conservation tillage can be used to reduce production risk from weather shocks. However, subsidized crop insurance and disaster payments also reduce risk through financial assistance. The paper examines the extent to which risk‐reducing tillage practices and government programs are substitutes for each other. The economic model shows that a decline in average weather conditions increases the use of conservation tillage. The economic model also shows that the impact of weather risk and risk aversion on risk‐reducing practices like conservation tillage are ambiguous. The effect depends on the degree that losses are offset by government payments. The paper uses county‐level tillage practice data from the Conservation Tillage Information Center for the three‐state region of Iowa, Nebraska, and South Dakota. Results are estimated using instrumental variables and spatial panel data techniques. Instruments for the program participation and payment data include political variables and weather data. The empirical analysis shows that recent disaster and indemnity payments are associated with an increase in the use of no‐till and a decrease in the use of other conservation till. Results also show that producers in counties with recent drought and flood events are more likely to use other conservation tillage. The results imply that there may be unintended impacts of changes to agricultural policies like disaster payments and crop insurance on the use of on‐farm conservation practices.