Managing Heat Risk: Crop Insurance and Rural Economic Resilience

Liao, Yanjun (Penny), Hannah Druckenmiller and Margaret A. Walls
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Liao, Yanjun (Penny): Resources for the Future
Hannah Druckenmiller: Resources for the Future
Margaret A. Walls: Resources for the Future

No 26-13, RFF Working Paper Series from Resources for the Future

Abstract: This paper traces weather extremes through the Federal Crop Insurance Program (FCIP), the single largest form of federal support for US agricultural production, and into rural labor markets, estimating first how weather shocks drive FCIP enrollment and then how enrollment shapes the employment consequences of those same shocks. We combine policy-level FCIP enrollment records from 1991 to 2019 with establishment-level data on the near-universe of US businesses. We have two central findings. First, farmers respond to adverse weather and yield shocks by increasing insurance participation: a 10 percent yield decline increases insured acreage by approximately 4.9 percent for corn and 3.4 percent for soybeans. Projecting this response forward under RCP 4.5, climate-driven enrollment growth alone is estimated to raise program costs by 4–9 percent for corn and soybeans by midcentury, a magnitude comparable to fiscal analyses that attribute cost increases primarily to higher liabilities. Second, FCIP enrollment substantially mitigates the adverse effects of extreme heat on rural labor markets and generates positive spillovers to nontradable sectors, such as retail, hospitality, and health care. Our attribution exercise suggests that, during 2015–2019, the FCIP preserves about 95,000 rural jobs annually at an average program cost of roughly $53,000 per job. These findings highlight the program’s role in supporting rural economic resilience and should be considered alongside fiscal sustainability concerns in ongoing policy discussions.

Date: 2026-08-10
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