The US federal crop insurance program: a case study in rent seeking

Abstract

Purpose Rent seeking is endemic to the process through which any policy or regulatory initiative is developed in the USA. The purpose of this paper is to show how farm and other interest groups have formed coalitions to benefit themselves at the expense of the federal government by examining the legislative history of the federal crop insurance program. Design/methodology/approach The federal crop insurance legislation and the way in which the USDA Risk Management Agency manages federal crop insurance program are replete with complex and subtle policy initiatives. Using a new theoretical framework, the study examines how, since 1980, three major legislative initiatives – the 1980 Federal Crop Insurance Act, the 1994 Crop Insurance Reform Act and the 2000 Agricultural Risk Protection Act – were designed to jointly benefit farm interest groups and the agricultural insurance industry, largely through increases in government subsidies. Findings Each of the three legislative initiatives examined here included provisions that, when considered individually, benefitted farmers and adversely affected the insurance industry, and vice versa. However, the joint effects of the multiple adjustments included in each of those legislative initiatives generated net benefits for both sets of interest groups. The evidence, therefore, indicates that coalitions formed between the farm and insurance lobbies to obtain policy changes that, when aggregated, benefited both groups, as well as banks with agricultural lending portfolios. However, those benefits came at an increasingly substantial cost to taxpayers through federal government subsidies. Originality/value This is the first analysis of the US federal crop insurance program to examine the issue of coalition formation.