The Effects of Crop Insurance Subsidies and Sodsaver on Land-Use Change
By: Miao, Ruiqing; Hennessy, David A.; Feng, Hongli
Miao, Ruiqing; Hennessy, David A.; Feng, Hongli, The Effects of Crop Insurance Subsidies and Sodsaver on Land-Use Change, Journal of Agricultural and Resource Economics, Volume 41, Issue 2, May 2016, Pages 247-265
It is well known that insurance market information asymmetry can cause socially excessive cropping of yield-risky land. We show that crop insurance subsidies can cause the same problem absent information failures. Using field-level yield data, we find an inversed U-shaped relationship between crop prices and crop insurance subsidies’ land-use impacts. For seventeen counties in the U.S. Prairie Pothole Region, simulations show that 0.05% to 3.3% (about 2,600 to 157,900 acres) of land under crop insurance would not have been converted from grassland had premium subsidies not existed. Land-use impacts of Sodsaver in the 2014 Farm Act are also quantified.