Subsidized Crop Insurance Design and its Effect on Incentives for Risk Mitigation

Gerald Van Tassell and Alan Ker

No 404359, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: The United States spends billions annually on crop insurance premium subsidies, yet the prevailing distance-based guarantee design unintentionally rewards risk-taking by linking subsidies to yield variability. We consider a simple redesign: define guarantees in terms of probability so that coverage reflects a consistent likelihood of indemnity. Using U.S. data, this probability-based approach would reallocate about $3.3 billion in annual subsidies from high-risk to low-risk production, reducing regional disparities by two-thirds without changing total subsidies. Because most publicly subsidized crop insurance programs around the world share this structure, adopting probability-based guarantees could help realign agricultural production toward more resilient and sustainable regions and practices.

Keywords: Agricultural; and; Food; Policy (search for similar items in EconPapers)
Pages: 30
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404359

DOI: 10.22004/ag.econ.404359

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