IDEAS home Printed from https://ideas.repec.org/p/ags/saea18/266763.html
   My bibliography  Save this paper

Production and Moral Hazard Effects of 2014 Cotton Farm Bill Policies

Author

Listed:
  • Devadoss, Stephen
  • Luckstead, Jeff

Abstract

Abstract We develop a model for a representative risk-averse cotton farmer to analyze the impact of crop insurance policies (RP, YP, STAX, and SCO). The model is calibrated and numerically optimized to quantify the effects of different insurance policy combinations on input use, insurance coverage levels, premiums, and certainty equivalent. When the farmer elects only RP, the optimal coverage rate is 80%. Under RP&STAX, the optimal RP coverage rate is 70% and the STAX coverage rate is 90%. RP&STAX is the optimal policy combination based on certainty equivalents. The RP&SCO combination has the lowest impact of input use.

Suggested Citation

  • Devadoss, Stephen & Luckstead, Jeff, 2018. "Production and Moral Hazard Effects of 2014 Cotton Farm Bill Policies," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266763, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea18:266763
    DOI: 10.22004/ag.econ.266763
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/266763/files/Manuscript_v4_Final_Names.pdf
    Download Restriction: no
    File URL: https://ageconsearch.umn.edu/record/266763/files/Manuscript_v4_Final_Names.pdf?subformat=pdfa
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.266763?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. Atanu Saha & C. Richard Shumway & Hovav Talpaz, 1994. "Joint Estimation of Risk Preference Structure and Technology Using Expo-Power Utility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(2), pages 173-184.
    2. Campiche, Jody L., 2014. "Theme Overview: Deciphering Key Provisions of the Agricultural Act of 2014," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 29(2), pages 1-2.
    3. Jerry R. Skees & J. Roy Black & Barry J. Barnett, 1997. "Designing and Rating an Area Yield Crop Insurance Contract," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(2), pages 430-438.
    4. Moschini, Giancarlo & Hennessy, David A., 2001. "Uncertainty, risk aversion, and risk management for agricultural producers," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 2, pages 88-153, Elsevier.
    5. Campiche, Jody, 2013. "Details of the Proposed Stacked Income Protection Plan (STAX) Program for Cotton Producers and Potential Strategies for Extension Education," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 45(3), pages 569-575, August.
    6. Barry J. Barnett & Olivier Mahul, 2007. "Weather Index Insurance for Agriculture and Rural Areas in Lower-Income Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(5), pages 1241-1247.
    7. Vedenov, Dmitry V. & Barnett, Barry J., 2004. "Efficiency of Weather Derivatives as Primary Crop Insurance Instruments," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 29(3), pages 1-17, December.
    8. Davis, Todd & Anderson, John A. & Smith, Nathan, 2014. "Evaluating the Impact of Proposed Farm Bill Programs with Crop Insurance for Southern Crops," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162409, Southern Agricultural Economics Association.
    9. Campiche, Jody L., 2013. "Analysis of the STAX and SCO Programs for Cotton Producers," 2013 AAEA: Crop Insurance and the Farm Bill Symposium 156826, Agricultural and Applied Economics Association.
    10. Barry K. Goodwin, 2009. "Payment Limitations and Acreage Decisions under Risk Aversion: A Simulation Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 19-41.
    11. Campiche, Jody L., 2013. "Details of the Proposed Stacked Income Protection Plan (STAX) Program for Cotton Producers and Potential Strategies for Extension Education," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 45, pages 1-7, August.
    12. Harun Bulut & Keith J. Collins, 2014. "Designing farm supplemental revenue coverage options on top of crop insurance coverage," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 74(3), pages 397-426, August.
    13. Luitel, Kishor P. & Hudson, Darren & Knight, Thomas O., 2015. "Understanding Cotton Producer’s Crop Insurance Choices Under the 2014 Farm Bill," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205438, Agricultural and Applied Economics Association.
    14. 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.
    15. Luitel, Kishor & Knight, Thomas & Hudson, Darren, 2015. "Evaluation of Crop Insurance Choices for Cotton Producers under the 2014 Farm Bill," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196882, Southern Agricultural Economics Association.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stephen Devadoss & Jeff Luckstead, 2020. "US–Brazilian cotton policies," The World Economy, Wiley Blackwell, vol. 43(8), pages 2222-2236, August.

    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. Shih-Chieh Liao & Shih-Chieh Chang & Tsung-Chi Cheng, 2021. "Managing the Volatility Risk of Renewable Energy: Index Insurance for Offshore Wind Farms in Taiwan," Sustainability, MDPI, vol. 13(16), pages 1-27, August.
    2. Bokusheva, Raushan, 2010. "Measuring the dependence structure between yield and weather variables," MPRA Paper 22786, University Library of Munich, Germany.
    3. Bokusheva, Raushan & Breustedt, Gunnar, 2012. "The Effectiveness of Weather-Based Index Insurance and Area-Yield Crop Insurance: How Reliable are ex post Predictions for Yield Risk Reduction?," Quarterly Journal of International Agriculture, Humboldt-Universitaat zu Berlin, vol. 51(2), pages 1-22, May.
    4. Boyer, Christopher N. & Jensen, Kimberly L. & McLeod, Elizabeth & Larson, James A., 2016. "Upland Cotton Producers’ Willingness to participate in a BMP/STAX Pilot Program," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 234975, Agricultural and Applied Economics Association.
    5. 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.
    6. Barnett, Barry J. & Barrett, Christopher B. & Skees, Jerry R., 2008. "Poverty Traps and Index-Based Risk Transfer Products," World Development, Elsevier, vol. 36(10), pages 1766-1785, October.
    7. Bokusheva, Raushan, 2014. "Improving the Effectiveness of Weather-based Insurance: An Application of Copula Approach," MPRA Paper 62339, University Library of Munich, Germany.
    8. Raushan Bokusheva, 2011. "Measuring dependence in joint distributions of yield and weather variables," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 71(1), pages 120-141, May.
    9. Wienand Kölle & Andrea Martínez Salgueiro & Matthias Buchholz & Oliver Musshoff, 2021. "Can satellite‐based weather index insurance improve the hedging of yield risk of perennial non‐irrigated olive trees in Spain?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(1), pages 66-93, January.
    10. Alexis Berg & Philippe Quirion & Benjamin Sultan, 2009. "Weather-index drought insurance in Burkina-Faso: assessment of its potential interest to farmers," Post-Print hal-00520893, HAL.
    11. Catarina Roseta‐Palma & Yiğit Sağlam, 2019. "Downside risk in reservoir management," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 63(2), pages 328-353, April.
    12. Zhiwei Shen & Martin Odening, 2013. "Coping with systemic risk in index-based crop insurance," Agricultural Economics, International Association of Agricultural Economists, vol. 44(1), pages 1-13, January.
    13. Holly Wang, H. & Karuaihe, Raphael N. & Young, Douglas L. & Zhang, Yuehua, 2013. "Farmers’ demand for weather-based crop insurance contracts: the case of maize in south africa," International Journal of Agricultural Sciences and Technology (IJAGST), SvedbergOpen, vol. 52(1), March.
    14. Dissemin, uploaded via & Berg, Alexis & Quirion, Philippe & Sultan, Benjamin, 2018. "Weather-index drought insurance in Burkina-Faso: assessment of its potential interest to farmers," OSF Preprints dsmqz, Center for Open Science.
    15. Antoine Leblois & Philippe Quirion, 2013. "Agricultural insurances based on meteorological indices: realizations, methods and research challenges," Post-Print hal-00656778, HAL.
    16. Schmidt, Lorenz & Odening, Martin & Schlanstein, Johann & Ritter, Matthias, 2022. "Exploring the weather-yield nexus with artificial neural networks," Agricultural Systems, Elsevier, vol. 196(C).
    17. Coble, Keith H. & Barnett, Barry J., 1999. "The Role Of Research In Producer Risk Management," Professional Papers 15803, Mississippi State University, Department of Agricultural Economics.
    18. Just, Richard E., 2000. "Some Guiding Principles for Empirical Production Research in Agriculture," Agricultural and Resource Economics Review, Cambridge University Press, vol. 29(2), pages 138-158, October.
    19. Kellner, Ulla & Musshoff, Oliver, 2011. "Precipitation or water capacity indices? An analysis of the benefits of alternative underlyings for index insurance," Agricultural Systems, Elsevier, vol. 104(8), pages 645-653, October.
    20. Baez, Karen & Iglesias, Eva, 2011. "Innovative Tools To Address Drought Risk In Grazing Lands," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114232, European Association of Agricultural Economists.

    More about this item

    Keywords

    Agricultural and Food Policy; Risk and Uncertainty;

    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:saea18:266763. 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/saeaaea.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.