The Environmental Impacts of Subsidized Crop Insurance

Jeffrey LaFrance (), Jay Shimshack and S. Y. Wu

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: A partial equilibrium model of stochastic crop production is used to analyze the environmental impacts of popular subsidized crop insurance programs. Land use is unchanged only when an actuarially fair, perfectly separating insurance contract is offered. For the more typical pooling equilibrium contracts, however, land with a minimum quality that is stricly lower than the minimum quality without insurance will be added to production. In such cases, the environment will be adversely effected. If economically marginal land is also environmentally marginal, pooling crop insurance policies disproportionately contribute to the degradation of the environment. Popular subsidies merely exacerbate the problem.

Keywords: agricultural subsidies, crop insurance, equilibrium (economics), land utilization; risk (search for similar items in EconPapers)
Date: 2001-10-01
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Working Paper: The Environmental Impacts of Subsidized Crop Insurance (2001)
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