Did the Federal Crop Insurance Reform Act Alter Farm Enterprise Diversification? |
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| Authors: | Erik J O’Donoghue Michael J Roberts Nigel Key |
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| Institution: | 1. Erik J. O’Donoghue, Michael J. Roberts and Nigel Key are economists with the Economic Research Service of the US Department of Agriculture;2. USDA‐ERS, 1800?M St., NW, Washington, DC 20036, USA. E‐mail: for correspondence. The views expressed herein are solely our own and do not represent the views of the USDA. We thank David Harvey and two anonymous referees for their valuable comments and suggestions. Any remaining errors are our own. |
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| Abstract: | We estimate how much United States farms changed enterprise diversification in response to a marked increase in crop insurance coverage brought about by the 1994 Federal Crop Insurance Reform Act, which substantially increased insurance subsidies. The analysis exploits farm‐level panel census data to compare farm‐specific changes in enterprise diversification over time. By examining diversification decisions of the same farms over time, we control for time‐invariant unobserved individual heterogeneity. We then use pooled cross‐sectional data from the United States Department of Agriculture (USDA) Agricultural Resource Management Survey to estimate the relationship between farm diversification and average returns. We find that the insurance subsidies caused a modest increase in enterprise specialisation and production efficiency. Estimated efficiency gains are far less than the subsidies. |
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| Keywords: | Agricultural risk management diversification federal crop insurance Q12 Q18 |
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