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.
In 2008, the hypoxic zone in the Gulf of Mexico, measuring 20 720 km2, was one of the two largest reported since measurement of the zone began in 1985. The extent of the hypoxic zone is related to nitrogen and phosphorous loadings originating on agricultural fields in the upper Midwest. This study combines the tools of evolutionary computation with a water quality model and cost data to develop a trade‐off frontier for the Upper Mississippi River Basin specifying the least cost of achieving nutrient reductions and the location of the agricultural conservation practices needed. The frontier allows policymakers and stakeholders to explicitly see the trade‐offs between cost and nutrient reductions. For example, the cost of reducing annual nitrate‐N loadings by 30% is estimated to be US$1.4 billion/year, with a concomitant 36% reduction in P and the cost of reducing annual P loadings by 30% is estimated to be US$370 million/year, with a concomitant 9% reduction in nitrate‐N.
Land use impacts of biofuel expansion have attracted a tremendous amount of attention because of the implications for the climate, the environment, and the food supply. To examine these impacts, we set up an economic framework that links input use and land allocation decisions with ethanol and agricultural commodity markets. Crops can be substitutes or complements in supply depending on the relative magnitude of three effects of crop prices: total cropland effect, land share effect, and input use effect. We show that with unregulated free markets, total cropland area increases with corn prices whether crops are substitutes or complements in supply. Similarly, higher corn yields from exogenous technical changes lead to cropland expansion. The impacts of yield increases for other crops are ambiguous. With a quantity mandate for ethanol, higher mandates mean larger cropland area if corn and other crops are substitutes in demand. For a given mandate, yield improvement causes total cropland to expand if crop demand is elastic enough, or to contract under a very general condition if crop demand is sufficiently inelastic.
The study develops a conceptual framework for analyzing the allocation of conservation funds via selectively offering incentive payments to farmers for enrolling in one of two mutually exclusive agricultural conservation programs: retiring land from production or changing farming practices on land that remains in production. We investigate how the existence of a pre-fixed budget allocation between the programs affects the amounts of environmental benefits obtainable under alternative policy implementation schemes. The framework is applied to a major agricultural production region using field-scale data in conjunction with empirical models of land retirement and conservation tillage adoption, and a biophysical process simulation model for the environmental benefits of carbon sequestration and reduction in soil erosion. Environmental Conservation in Agriculture:
Keywords
ConservationLand Retirement versus Changing Practices on Working Land
AbstractThe study develops a conceptual framework for analyzing the allocation of conservation funds via selectively o ering incentive payments to farmers for enrolling in one of two mutually exclusive agricultural conservation programs: retiring land from production or changing farming practices on land that remains in production. We investigate how the existence of a pre-xed budget allocation between the programs a ects the amounts of environmental bene ts obtainable under alternative policy implementation schemes.The framework is applied to a major agricultural production region using eld-scale data in conjunction with empirical models of land retirement and conservation tillage adoption, and a biophysical process simulation model for the environmental bene ts of carbon sequestration and reduction in soil erosion.
Relative agricultural productivity shocks emerging from climate change will alter regional cropland use. Land allocations are sensitive to crop profits that in turn depend on yield effects induced by changes in climate and technology. We develop and apply an integrated framework to assess the impact of climate change on agricultural productivity and land use for the U.S. Northern Great Plains. Crop‐specific yield–weather models reveal crop comparative advantage due to differential yield impacts of weather across the region's major crops, that is, alfalfa, wheat, soybeans, and maize. We define crop profits as a function of the weather‐driven yields, which are then used to model land use allocation decisions. This ultimately allows us to simulate the impact of climate change under the RCP4.5 emissions scenario on land allocated to the region's major crops as well as to grass/pasture. Upon removing the trends effects in yields, climate change is projected to lower yields by 33–64% over 2031–2055 relative to 1981–2005, with soybean being the least and alfalfa the most affected crops. Yield projections applied to the land use model at present‐day input costs and output prices reveals that Dakotas’ grass acreage will increase by up to 23%, displacing croplands. Wheat acreage is expected to increase by up to 54% in select southeastern counties of North Dakota and South Dakota, where maize/soy acreage had increased by up to 58% during 1995–2016.
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