Does Federal Crop Insurance Make Environmental Externalities from Agriculture Worse?

Jeremy Weber, Nigel Key and Erik O’Donoghue

Journal of the Association of Environmental and Resource Economists, 2016, vol. 3, issue 3, 707 - 742

Abstract: Farmers dramatically increased their use of federal crop insurance in the 2000s. From 2000 to 2013, premium subsidies increased sevenfold and acres enrolled increased by 77%. Although designed for nonenvironmental goals, subsidized insurance may affect the use of land, fertilizer, and agrochemicals and, therefore, environmental externalities from agriculture. Using novel panel data, we examine farmer responses to changes in coverage with an empirical approach that exploits program limits on coverage that were more binding for some farmers than for others. Estimates indicate that expanded coverage had little effect on the share of farmland harvested, crop specialization, productivity, or fertilizer and chemical use. More broadly, we construct and describe a new nationwide, farm-level panel data set with nearly 32,500 farms observed at least twice over the 2000–2013 period, a resource that should enrich US agro-environmental research.

Date: 2016
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