The Effects of Crop Insurance Subsidies and Sodsaver on Land-Use Change

Date
2016-05-01
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Miao, Ruiqing
Hennessy, David
Feng, Hongli
Feng, Hongli
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Economics
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EconomicsCenter for Agricultural and Rural Development
Abstract

It is well known that insurance market information asymmetry can cause socially excessive cropping of yield-risky land. We show that crop insurance subsidies can cause the same problem absent information failures. Using field-level yield data, we find an inversed U-shaped relationship between crop prices and crop insurance subsidies’ land-use impacts. For seventeen counties in the U.S. Prairie Pothole Region, simulations show that 0.05% to 3.3% (about 2,600 to 157,900 acres) of land under crop insurance would not have been converted from grassland had premium subsidies not existed. Land-use impacts of Sodsaver in the 2014 Farm Act are also quantified.

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This article is published as Miao, Ruiqing, David A. Hennessy, and Hongli Feng. "The effects of crop insurance subsidies and Sodsaver on land-use change." Journal of Agricultural and Resource Economics 41 (2016): 247-265. doi:10.22004/ag.econ.235189. Posted with permission.

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