2002 World Congress of Environmental and Resource Economists

Non-point source emissions, such as those from agriculture, are not generally subject to enforceable regulation in the United States. As a result, government policies that encourage cropland expansion may be detrimental to the nation’s water quality. Consequently, this paper examines the relationship between crop insurance programs and expansion on the extensive margin of agricultural production. A partial equilibrium model of stochastic crop production demonstrates that land use is unchanged (relative to no insurance) only when an actuarially fair separating contract is offered. Separation must occur across land qualities, and a unique insurance premium is required for each and every quality. For actuarially fair, pooling equilibrium contracts, however, land with a minimum quality that is strictly lower than the minimum quality without insurance will be added to production. Premium subsidies, regardless of equilibrium type, create (further) incentives for expansion on the extensive margin.



	Paper Title:	Crop Insurance And The Extensive Margin
	Presenting Author:	Jay P Shimshack (UC Berkeley)
	Coauthor 1:	Jeffrey T Lafrance
	Coauthor 2:	Steven Wu
	Coauthor 3:
	Abstract:	Non-point source emissions, such as those from agriculture, are not generally subject to enforceable regulation in the United States. As a result, government policies that encourage cropland expansion may be detrimental to the nation’s water quality. Consequently, this paper examines the relationship between crop insurance programs and expansion on the extensive margin of agricultural production. A partial equilibrium model of stochastic crop production demonstrates that land use is unchanged (relative to no insurance) only when an actuarially fair separating contract is offered. Separation must occur across land qualities, and a unique insurance premium is required for each and every quality. For actuarially fair, pooling equilibrium contracts, however, land with a minimum quality that is strictly lower than the minimum quality without insurance will be added to production. Premium subsidies, regardless of equilibrium type, create (further) incentives for expansion on the extensive margin.
	Link to paper:	http://weber.ucsd.edu/~carsonvs/papers/830.pdf

	Session / Day / Time	3I / Monday / 2:15 - 4:15 pm

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