This analysis decomposes the production impacts of income support programs into wealth, insurance, and coupling effects. Under the usual assumptions about preferences, the wealth and insurance effects of many support programs increase optimal input levels even for supposedly decoupled programs. If the program is “coupled” in the usual sense, then all three effects often act in the same direction. It is concluded that studies of trade and domestic policy reform in stochastic environments should consider insurance and wealth effects. The derivative conditions required to obtain results are also subjected to scrutiny. Simulations for an Iowa corn producer confirm the comparative statics. Copyright 1998, Oxford University Press.

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The question of how insurance programs affect agricultural input use is commanding increasing attention. Previous studies disagree on the likely effects of insurance on fertilizer application rates. Whether insurance is a complement or a substitute for fertilizer depends, in part, on whether the probability of low yields is positively or negatively affected by increased fertilizer rates. This study uses field-level data measuring the response of corn yields to nitrogen fertilizer to determine if the technical relationship between yield and nitrogen fertilizer supports the hypothesis that crop insurance or revenue insurance could induce increased application rates. Our results indicate no support for this hypothesis. At all nitrogen fertilizer rates and reasonable levels of risk aversion, nitrogen fertilizer and insurance are substitutes, suggesting that those who purchase insurance are likely to decrease nitrogen fertilizer applications. Disciplines Agricultural and Resource Economics | Agricultural Economics | Economics | Insurance ABSTRACTThe question of how insurance programs affect agricultural input use is commanding increasing attention. Previous studies disagree on the likely effects of insurance on fertilizer application rates. Whether insurance is a complement or a substitute for fertilizer depends, in part, on whether the probability of low yields is positively or negatively affected by increased fertilizer rates. This study uses field-level data measuring the response of com yields to nitrogen fertilizer to determine if the technical relationship between yield and nitrogen fertilizer supports the hypothesis that crop insurance or revenue insurance could induce increased application rates. Our results indicate no support for this hypothesis. At all nitrogen fertilizer rates and reasonable levels of risk aversion, nitrogen fertilizer and insurance are substitutes, suggesting that those who purchase insurance are likely to decrease nitrogen fertilizer applications. INPUT DEMAND UNDER YIELD AND REVENUE INSURANCEThe effect of agricultural insurance on optimal per acre input levels is in dispute. The issue of how input decisions change under crop and revenue insurance schemes is attracting increased attention because of proposals to force farmers to rely more on insurance and less on direct government subsidies. For example, a group oflowa farmers and farm organizations has proposed the elimination of current commodity programs in favor of a plan that insures gross revenue. If optimal chemical use increases under insurance, as suggested by Horowitz and Lichtenberg, then it is likely that a move away from direct government payments and towards increased reliance on insurance will result in greater environmental pollution from agriculture. However, if optimal chemical use declines significantly under insurance, as concluded by Smith and Goodwin and Quiggins, Karagiannis, and Stanton, then the environment may benefit, but moral hazard issues will make the pricing of insurance difficult. 2The Horowitz ...

The impact on pesticide use of genetically engineered maize and soybean varieties has changed over time.

Yield improvements are critical to ensuring food security for a growing world population especially in view of the increasing potential for use of land in biofuel production. Efforts to sustain the impressive rate of past productivity gains, epitomized by such successes as the Green Revolution, are bound to rely on biotechnology innovations such as those responsible for the development of genetically engineered (GE) crops. Some argue that the use of biotechnology can substantially improve yields relative to the trajectory established by traditional breeding in the 20th century. Because U.S. adoption of GE varieties has been very strong since their introduction in the late 1990s, we investigated empirically whether and to what extent the GE technology has improved realized yields. We study this question for nonirrigated U.S. maize (Zea mays L.) and soybean [Glycine max (L.) Merr.] yields over 1964 through 2010, having controlled for local effects, weather, fertilization, and the preexisting (non‐GE) crop improvement trend. For maize we find that GE varieties have increased realized yields, with a stronger gain in the Central Corn Belt (CCB). For soybeans, GE varieties appear to have slightly reduced yields. For both crops we find a strong trend in yield growth, which may have accelerated in recent years within the CCB. However, the combined effects of yield trend and GE adoption are predicted to fall short of the growth rate envisioned by industry projections.

Three trends that have been subject to recent discussion are a movement away from undifferentiated agricultural commodities toward more specialized products, reduced reliance on open markets for raw agricultural products, and a movement toward agricultural industrialization. Recent research suggests that demographic trends may be causing the first trend, while the other two are closely related phenomena. This research suggests that information externalities, arising from uncertainty concerning the nature of food quality and problems in detecting quality, may be reasons why vertical coordination is being used to circumvent the marketplace. Copyright 1996, Oxford University Press.

The U.S. crop insurance market has several features that set it apart from other insurance markets. These include:(a) explicit government subsidies with an average premium subsidy rate of about 60% in recent years; and (b) the legislative requirement that premium rates be set at actuarially fair levels, where the federal government sets rates and pays all costs related to insurance policy sales and services. Bearing these features in mind, we examine to what extent farmers' crop insurance choices conform to economic theory. A standard expected utility maximization framework is set up to analyze tradeoffs between higher risk protection and larger subsidy payments. Given an actuarially fair premium, a rational farmer should choose either the coverage level with the highest premium subsidy or a higher coverage level. Evidence from a large insurance unit level dataset contradicts this theoretical inference, and so suggests anomalous insurance decisions. Mixed logit estimation reveals that larger out-of-pocket premium reduces the probability that an insurance product is chosen.

Legislation passed in 1996 changed the way the U.S. federal government acts to reduce risks faced by U.S. crop products. The authors compare the new, alternative forms of revenue insurance to the 1990 deficiency payment program and to a ''no-program'' alternative. They estimate the effects of the alternative polices on the acreage allocations of a representative farm, on the expected government cost, and on producer welfare. Simulation results indicate that a revenue insurance scheme that guarantees 75 percent of expected revenue to risk-averse produced could provide approximately the same level of benefits as the 1990 program, at as little as one-fourth the cost. ABSTRACTThe efficiency of redistribution of a government provided revenue insurance program is