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How Do Premium Subsidies Affect Crop Insurance Demand at Different Coverage Levels: the Case of Corn

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  • Yi, Jing
  • Richardson, James
  • Bryant, Henry

Abstract

This paper uses regional county level data to explore the impacts of crop insurance premium subsidies on the demand for corn crop insurance at each coverage level. Although the demand for corn insurance is price-inelastic, the elasticities of demand with respect to per dollar net premium vary significantly among coverage levels, insurance plans, and regions. The elasticities of demand for corn yield insurance (APH) with respect to per dollar net premium are − 0 .230, −0 .158, and −0 .259 at the 80% coverage level in the Corn Belt, Lake States, and Northern Plains, respectively. The corresponding elasticity at the 75% coverage level in the Southern Plains is −0 .654. The elasticities of demand for corn revenue insurance (CRC) with respect to per dollar net premium are −0 .200, −0 .208 at the 80% coverage level in the Corn Belt and Lake States, respectively, and it is −0 .670 at the 75% coverage level in the Southern Plains. The results show that elasticities of demand for corn insurance tend to be larger in riskier regions at relatively higher coverage levels. This study also estimates the possible changes in producers’ crop insurance purchases if federal crop insurance premium subsidies are reduced by 10 percentage points. The expected change in producers’ purchases of corn revenue insurance at the 75% coverage level in the Southern Plains ( −12 .182%) would be three times greater than it is at the 80% coverage level in the Corn Belt ( −4 .167%) with a 10 percentage point decrease in premium subsidy rates.

Suggested Citation

  • Yi, Jing & Richardson, James & Bryant, Henry, 2016. "How Do Premium Subsidies Affect Crop Insurance Demand at Different Coverage Levels: the Case of Corn," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236249, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:236249
    DOI: 10.22004/ag.econ.236249
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    References listed on IDEAS

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    Cited by:

    1. Tiwari, Sweta & Coble, Keith & Harri, Ardian & Barnett, Barry, 2017. "Hedging the Price Risk of Crop Revenue Insurance Through the Options Market," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 253081, Southern Agricultural Economics Association.
    2. Lavorato, M. & Braga, M., 2018. "Assessing the effects of premium subsidies on crop insurance demand: An analysis for grain production in Southern Brazil," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276025, International Association of Agricultural Economists.

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