Munich Personal RePEc Archive

Does Federal Crop Insurance Make Environmental Externalities from Agriculture Worse?

Weber, Jeremy G. and Key, Nigel and O'Donoghue, Erik (2016): Does Federal Crop Insurance Make Environmental Externalities from Agriculture Worse? Forthcoming in: Journal of the Association of Environmental and Resource Economists

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Abstract

Farmers dramatically increased their use of federal crop insurance in the 2000s. From 2000 to 2013, premium subsidies increased seven-fold and acres enrolled increased by 77 percent. Although designed for non-environmental goals, subsidized insurance may affect the use of land, fertilizer, and agrochemicals and therefore environmental externalities from agriculture. Using a novel panel data, we examine farmer responses to changes in coverage with an empirical approach that exploits program limits on coverage that were more binding for some farmers than for others. Estimates indicate that expanded coverage had little effect on the share of farmland harvested, crop specialization, productivity, or fertilizer and chemical use. More broadly, we construct and describe a new nation-wide, farm-level panel data set with nearly 32,500 farms observed at least twice over the 2000-2013 period, a resource that should enrich U.S. agro-environmental research.

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