Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258665 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 14 [Issue:] 11 [Article No.:] 562 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-20
Publisher: 
MDPI, Basel
Abstract: 
US crop insurance is subsidized to encourage producers to participate and reduce their risk exposure. However, what has been the impact of these subsidies on insurance demand and crop acres planted? Using a simultaneous system of two equations, we quantify both insurance participation and acreage response to subsidized crop insurance for cotton-producing counties across the US at the national and regional levels. We also quantify the impact of both the realized rate of return and the expected subsidy per pound, plus the combined effects of expected yield and price while accounting for the adoption of Bacillus thuringiensis (Bt) technology and other factors. Results show that both the rate of return and the expected subsidy per unit of production have a statistically significant and positive effect on the percentage of arable acres planted. Furthermore, the marginal effect of expected price on insurance participation is much more significant for low- than high-yield counties. Results indicate that not all regions respond the same to subsidized crop insurance and that subsidies should be based on dollars per expected unit of production rather than expected production to be less distorting. Overall, US cotton acreage response is estimated to be inelastic (0.58) to insurance participation.
Subjects: 
Bt adoption
insurance participation
acreage response
fixed effects
subsidy per pound
rate of return
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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