Author: Jisang YuPublisher:
ISBN: 9781369310917
Category :
Languages : en
Pages :
Book Description
Risk and uncertainty affect agricultural production and investment decisions. This dissertation investigates how farm production and investment respond to crop insurance availability and government subsidies. Chapter 2 develops a conceptual framework that describes effects of subsidized agricultural insurance on crop choices. The overall impact is illustrated as a sum of two effects: an actuarially fair insurance effect and a premium subsidy effect. The effects of premium subsidies are further separated into a direct profit effect and an indirect coverage effect. Premium subsidies affect crop choices by increasing profitability of the insured crop for a given quantity of insurance purchased and by encouraging farms to purchase more crop insurance, which also tends to affect crop choices. Under relatively general assumptions, Chapter 2 derives conditions for positive production effects of actuarially fair insurance and premium subsidies. Chapter 3 develops an empirical strategy to estimate effects of premium subsidies in the U.S. federal crop insurance program on planted acreage across field crops. Exploiting periodic policy changes, I estimate and identify the effects of the U.S. crop insurance premium subsidies on planted acreage of seven major field crops. The estimated results imply that a 10% increase in the premium subsidy causes about 0.43% increase in crop planted acreage, which is equivalent to an own-price elasticity of about 1.22. This is substantially greater than the estimated own-price elasticity, and supports the expectations from the conceptual framework in Chapter 2. Since conventional individual outcome-based crop insurance is too expensive to be implemented in many developing countries, index insurance is often considered as an alternative. Chapter 4 simulates production effects of the introduction of area-yield index insurance and embedded premium subsidies for rice farmers in Nepal. I illustrate how basis risk, which is the individual risk left uninsured by index insurance, affects demands for the insurance and potential production effects of availability of insurance and premium subsidies. From a retrospective survey of Nepalese farmers, the simulation results show how basis risk deters the production effects of area-yield index insurance and its premium subsidies.