Influence of the Premium Subsidy on Farmers' Crop Insurance Coverage Decisions

Bruce Babcock and Chad Hart

Center for Agricultural and Rural Development (CARD) Publications from Center for Agricultural and Rural Development (CARD) at Iowa State University

Abstract: The Agricultural Risk Protection Act greatly increased the expected marginal net benefit of farmers buying high-coverage crop insurance policies by coupling premium subsidies to coverage level. This policy change, combined with cross-sectional variations in expected marginal net benefits of high-coverage policies, is used to estimate the role that premium subsidies play in farmers' crop insurance decisions. We use county data for corn, soybeans, and wheat to estimate regression equations that are then used to obtain insight into two policy scenarios. We first estimate that eventual adoption of actuarially fair incremental premiums, combined with current coupled subsidies, would increase farmers' purchase of high-coverage policies by almost 400 percent from 1998 levels across the three crops and two plans of insurance included in the analysis. We then estimate that a return to decoupled subsidies would decrease farmers' high-coverage purchase decisions by an average of 36 percent.

Keywords: Agricultural Risk Protection Act; crop insurance; premium subsidies. (search for similar items in EconPapers)
Date: 2005-04
New Economics Papers: this item is included in nep-agr and nep-ias
References: View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:ias:cpaper:05-wp393

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