Crop Insurance in a Political Economy: An Alternative Perspective on Agricultural Policy |
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Authors: | Robert Innes |
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Institution: | Robert Innes is professor in the Department of Agricultural and Resource Economics and the Department of Economics, University of Arizona. |
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Abstract: | Lawmakers often subsidize farmers in times of financial distress. This article models this political impulse as a constraint on government farm policy, describing how ex ante government farm insurance can deter ex post "disaster relief" and improve production incentives by countering the moral hazard that otherwise prevails. Absent ex ante government policy, ex post relief takes the form of revenue insurance, which prompts excessive entry into farm production and under-production by operating farmers. Ex ante government policy can raise economic and political welfare by buying out low productivity farmers and offering profitable farmers a combination of revenue insurance, price supports, and a program participation fee. |
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Keywords: | crop insurance political economy agricultural policy moral hazard |
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