The Tangled Web of Agricultural Insurance: Evaluating the Impacts of Government Policy
By: Pearcy, Jason; Smith, Vincent H.
Pearcy, Jason; Smith, Vincent H., The Tangled Web of Agricultural Insurance: Evaluating the Impacts of Government Policy, Journal of Agricultural and Resource Economics, Volume 40, Issue 1, January 2015, Pages 80-111
This paper examines how changes in major elements of the U.S. federal crop insurance program affect the structure of the agricultural insurance industry.We model interactions between farmers, insurance agents and insurance companies. Marginal changes in government policy (premium subsidy rate, A&O subsidy rate, and loading factor) affect the insurance premium rate, agent compensation rates, agent effort levels, and market demand for crop insurance. Farmers prefer a marginal increase in the premium subsidy rate, but the insurance companies’ most preferred policy is a marginal increase in the A&O subsidy rate. We also evaluate the consequences of changes in crop prices.