Inertia in the U.S. federal crop insurance market

Xiaodong Du

International Journal of Industrial Organization, 2025, vol. 100, issue C

Abstract: We document significant inertia in farmers' crop insurance choices using a large panel of farm insurance records. Farmers often retain their previous year's plans, even after substantial shocks. We quantify inertia as the cost of switching plans in a discrete choice framework, incorporating an inertia indicator along with plan-specific attributes such as premiums, subsidies, and expected indemnities. These attributes are constructed based on individual farm characteristics. Our analysis estimates the average switching cost at approximately $10.9 per acre, comparable to the average per-acre premium for the yield insurance plan (APH) at 65% coverage and the revenue insurance plan (CRC) at 55% coverage. Explicit and implicit switching costs, information friction, and inattention contribute to this inertia.

Keywords: Crop insurance decision; Inattention; Mixed logit model; Switching costs (search for similar items in EconPapers)
JEL-codes: C25 G22 Q12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:100:y:2025:i:c:s0167718725000165

DOI: 10.1016/j.ijindorg.2025.103149

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