EconPapers    
Economics at your fingertips  
 

Does risk matter for farm businesses? The effect of crop insurance on production and diversification

Erik O'Donoghue, Nigel Key and Michael Roberts ()

No 19397, 2005 Annual meeting, July 24-27, Providence, RI from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: We use a large increase in Federal crop insurance subsidies as a natural experiment to identify the impact of risk on acreage and diversification decisions. Subsidy increases induced greater crop insurance coverage, which reduced farmers' financial risks. Did this change in the risk environment alter production decisions? We merged crop insurance participation data with farm-level Agricultural Census data from 1992 and 1997 to examine how harvested acreage and diversification changed in response to the policy-induced change in insurance coverage. The difference in differences empirical approach controls for unobservable heterogeneity and our results are robust across multiple definitions of our key variables and various fixed effects. We find that changes in the risk environment caused larger farms to expand while smaller farms shrank. Regardless of size, producers showed some evidence of using diversification as a method to mitigate risk. However, risk does not seem to have large overall effects.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 38
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
https://ageconsearch.umn.edu/record/19397/files/sp05od02.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:aaea05:19397

DOI: 10.22004/ag.econ.19397

Access Statistics for this paper

More papers in 2005 Annual meeting, July 24-27, Providence, RI from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().

 
Page updated 2021-01-22
Handle: RePEc:ags:aaea05:19397