IDEAS home Printed from https://ideas.repec.org/p/ags/aaea13/151284.html
   My bibliography  Save this paper

An Analysis of Farmers' Insurance Choices and Federal Crop Insurance Subsidies

Author

Listed:
  • Feng, Hongli
  • Du, Xiaodong
  • Hennessy, David A.

Abstract

The U.S. crop insurance has two distinct features that set itself apart from insurance in other areas: (i) it is explicitly subsidized with an average premium subsidy rate of about 60 percent in recent years; and (ii) the law requires the premium rate be set at actuarially fair level with the federal government paying the administrative and operational costs related to the sale and service of insurance policies. Bearing in mind these features, we examine to what extent farmers’ crop insurance choices conform to economic theory and estimate the implications of changes in premium subsidy structure. A standard expected utility maximization framework is set up to analyze the trade-offs between higher risk protection and larger subsidy payment. We show that, given actuarially fair premium, a rational farmer will choose the coverage level with the highest premium subsidy or a higher coverage level. With a large insurance unit level data, we fail to find empirical support for this theoretical results, which suggest a possible “anomaly” in insurance decisions. Estimation through mixed logit models reveals that out-of-pocket premium has a negative impact on the probability of an insurance product being chosen.

Suggested Citation

  • Feng, Hongli & Du, Xiaodong & Hennessy, David A., 2013. "An Analysis of Farmers' Insurance Choices and Federal Crop Insurance Subsidies," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151284, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:151284
    DOI: 10.22004/ag.econ.151284
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/151284/files/AAEA_2013_2105_Feng_Du_Hennessy.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.151284?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Xiaodong Du & David A. Hennessy & Hongli Feng, 2014. "A Natural Resource Theory of U.S. Crop Insurance Contract Choice," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 96(1), pages 232-252.
    2. Joseph W. Glauber, 2013. "The Growth Of The Federal Crop Insurance Program, 1990--2011," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 482-488.
    3. repec:aei:rpaper:32545 is not listed on IDEAS
    4. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xiaodong Du & Hongli Feng & David A. Hennessy, 2017. "Rationality of Choices in Subsidized Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 732-756.
    2. Xiaodong Du & Hongli Feng & David A. Hennessy, 2017. "Rationality of Choices in Subsidized Crop Insurance Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(3), pages 732-756.
    3. Xiaodong Du & David A Hennessy & Hongli Feng & Gaurav Arora, 2018. "Land Resilience and Tail Dependence among Crop Yield Distributions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(3), pages 809-828.
    4. Roger Claassen & Christian Langpap & JunJie Wu, 2017. "Impacts of Federal Crop Insurance on Land Use and Environmental Quality," American Journal of Agricultural Economics, John Wiley & Sons, vol. 99(3), pages 592-613, April.
    5. Chen, I-Chun & Du, Xiaodong & Mitchell, Paul D., 2018. "Policy Implications of Joint versus Separate Estimation of Crop Insurance Demand," 2018 Annual Meeting, August 5-7, Washington, D.C. 273878, Agricultural and Applied Economics Association.
    6. Shuoli Zhao & Chengyan Yue, 2020. "Risk preferences of commodity crop producers and specialty crop producers: An application of prospect theory," Agricultural Economics, International Association of Agricultural Economists, vol. 51(3), pages 359-372, May.
    7. Luckstead, Jeff & Devadoss, Stephen, 2016. "Implication of 2014 Farm Policies for Wheat Production," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235362, Agricultural and Applied Economics Association.
    8. Jisang Yu & Daniel A. Sumner, 2018. "Effects of subsidized crop insurance on crop choices," Agricultural Economics, International Association of Agricultural Economists, vol. 49(4), pages 533-545, July.
    9. Dan Yavorsky & Elisabeth Honka & Keith Chen, 2021. "Consumer search in the U.S. auto industry: The role of dealership visits," Quantitative Marketing and Economics (QME), Springer, vol. 19(1), pages 1-52, March.
    10. Zhifeng Gao & Ted C. Schroeder, 2009. "Consumer responses to new food quality information: are some consumers more sensitive than others?," Agricultural Economics, International Association of Agricultural Economists, vol. 40(3), pages 339-346, May.
    11. Cheng, Leilei & Yin, Changbin & Chien, Hsiaoping, 2015. "Demand for milk quantity and safety in urban China: evidence from Beijing and Harbin," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 59(2), April.
    12. Sebastian Heidenreich & Andrea Phillips-Beyer & Bruno Flamion & Melissa Ross & Jaein Seo & Kevin Marsh, 2021. "Benefit–Risk or Risk–Benefit Trade-Offs? Another Look at Attribute Ordering Effects in a Pilot Choice Experiment," The Patient: Patient-Centered Outcomes Research, Springer;International Academy of Health Preference Research, vol. 14(1), pages 65-74, January.
    13. Wen, Chieh-Hua & Huang, Chia-Jung & Fu, Chiang, 2020. "Incorporating continuous representation of preferences for flight departure times into stated itinerary choice modeling," Transport Policy, Elsevier, vol. 98(C), pages 10-20.
    14. Frith, Michael J., 2019. "Modelling taste heterogeneity regarding offence location choices," Journal of choice modelling, Elsevier, vol. 33(C).
    15. Johannes Buggle & Thierry Mayer & Seyhun Orcan Sakalli & Mathias Thoenig, 2023. "The Refugee’s Dilemma: Evidence from Jewish Migration out of Nazi Germany," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(2), pages 1273-1345.
    16. Boneva, Teodora & Golin, Marta & Kaufmann, Katja Maria & Rauh, Christopher, 2022. "Beliefs about Maternal Labor Supply," IZA Discussion Papers 15788, Institute of Labor Economics (IZA).
    17. Petrolia, Daniel & Interis, Matthew & Hwang, Joonghyun, 2015. "Single-Choice, Repeated-Choice, and Best-Worst Elicitation Formats: Do Results Differ and by How Much?," Working Papers 212479, Mississippi State University, Department of Agricultural Economics.
    18. Webb, Edward J.D. & Hess, Stephane, 2021. "Joint modelling of choice and rating data: Theory and examples," Journal of choice modelling, Elsevier, vol. 40(C).
    19. Jurgen Von Hagen & Jizhong Zhou, 2008. "The interaction between capital controls and exchange rate regimes: evidence from developing countries," International Economic Journal, Taylor & Francis Journals, vol. 22(2), pages 163-185.
    20. Christelis, Dimitris & Dobrescu, Loretti I. & Motta, Alberto, 2020. "Early life conditions and financial risk-taking in older age," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).

    More about this item

    Keywords

    Crop Production/Industries; Farm Management;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:aaea13:151284. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/aaeaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.