The Economics of Nested Insurance: The Case of SURE

Joseph Cooper (), Thomas W. Sproul and David Zilberman

No 61579, 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado from Agricultural and Applied Economics Association

Abstract: Traditionally, disaster assistance was available on an ad hoc basis, but the 2008 Farm Act provides a standing disaster assistance program known as Supplemental Revenue Assistance (SURE). This paper introduces a theory of nested insurance to evaluate the impact on of SURE on intensification, acreage and adoption. The results suggest that parameters of a government program like SURE may enhance the adoption and value of crop insurance to the farm sector. A quantitative understanding of the interdependencies between programs like SURE and crop insurance, taking into account the nature of the ad hoc alternative, is important in assessing the welfare impacts on farmers, as well as insurance companies. Both our theory and simulation exercise suggest that insurance increases the volume of production and/or leads to increased intensification (substitution into higher value crops). On the other hand, the gains from insurance and from programs like SURE may be lessened by the presence and probability of ad hoc disaster assistance.

Keywords: Crop Production/Industries; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 36
Date: 2010-07
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea10:61579

DOI: 10.22004/ag.econ.61579

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