Producer opportunism and environmental impacts of crop insurance and fertilizer decisions

Cory G. Walters

doi:10.7273/000006169

This dissertation empirically examines crop insurance effects on producers and the environment as well as environmental effects of nitrogen use. It follows the journal article style and includes three self-contained chapters. In the first paper I analyze whether opportunistic behavior in crop insurance can arise due to asymmetric information between producers and the Federal Crop Insurance Corporation. Producers who insure fields using transitional yields based on county average yields or who select options such as buy-up coverage or revenue insurance may increase their return from crop insurance. Using field-level crop insurance contract data for several crops in five growing regions, I find evidence that producers can profit from using buy-up coverage, revenue insurance, and transitional yields and that the level of producer opportunism is crop specific but not necessarily land-quality specific and is greater due to premium subsidization. In the second article I characterize the extensive-margin (land allocation) environmental effects of crop insurance and crop insurance contracts between regions using four environmental indicators. Crop insurance participation may affect a producer's acreage decision or how much of each crop to plant. Planting decisions affect the environment because the production of different crops requires different input levels. Our results indicate that adverse environmental impacts from crop insurance are evident in only two of the four regions analyzed and in only two of the four environmental indicators. Crop insurance is related to adverse wind erosion and total nitrogen loss in North Dakota and wind erosion in Eastern Colorado. The objective of the third article is to identify terrain attributes where unaccounted nitrogen is likely to occur and the economic impact on producers from a reduction in applied nitrogen. Understanding the environmental sensitivity from agricultural production helps to identify market conditions and technology that policymakers can use to design policies to minimize the economic cost of reducing environmental degradation. Results indicate that spatial econometric methods increase statistical efficiency in parameter estimation over standard econometric estimation. Statistically significant impacts of available nitrogen on yield are observed by terrain attribute and unaccounted nitrogen. Results indicate that the adoption of variable rate fertilizer application technology is not economic with our selection of landscape positions at our experimental site.

Producer opportunism and environmental impacts of crop insurance and fertilizer decisions

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