Economic Evaluation of Bt Corn Refuge Insurance

Paul D. Mitchell, Terrance M. Hurley and Richard L. Hellmich

No 18565, Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem

Abstract: The EPA has imposed mandatory refuge requirements for Bt crops to prolong the efficacy of Bt. Growers have no economic incentive to plant the required refuge because refuge crops are on average less productive and more risky. This paper evaluates refuge insuranceinsurance thatpays indemnities for yield losses on refuge due to insect damageas a tool to increase grower compliance incentives. We determine actuarially fair insurance premiums, then evaluate the feasibility of private provision of refuge insurance and its impact on grower incentives to comply with refuge requirements. A private market for refuge insurance appears unlikely because our analysis suggests that even a 2 percent load on the actuarially fair premium makes growers unwilling to buy refuge insurance. This load is not sufficient to cover administrative costs and provide a normal economic return. Even actuarially fair refuge insurance increases grower compliance incentives less than 3 percent. This result occurs because the primary benefit of Bt corn is yield enhancement and not risk reduction, but refuge insurance only reduces risk. For refuge insurance to provide significant compliance incentives, conventional insurance products must be restructured to draw premiums from sources other than grower risk premiums.

Keywords: Crop Production/Industries; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 26
Date: 2000
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/18565/files/wp000243.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:hebarc:18565

DOI: 10.22004/ag.econ.18565

Access Statistics for this paper

More papers in Hebrew University of Jerusalem Archive from Hebrew University of Jerusalem
Bibliographic data for series maintained by AgEcon Search ().