Crop Insurance Design and On‐Farm Risk Adaptation

Gerald Van Tassell and Alan P. Ker

Applied Economic Perspectives and Policy, 2026, vol. 48, issue 4, 1244-1257

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 US 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.

Date: 2026
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https://doi.org/10.1002/aepp.70087

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Persistent link: https://EconPapers.repec.org/RePEc:wly:apecpp:v:48:y:2026:i:4:p:1244-1257

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