The impact of enterprise unit policy change on the quantity demanded for crop insurance

Abstract

PurposeThe article examines the impact of policy change on enterprise unit subsidies that took place in 2009 on the quantity demanded for crop insurance.Design/methodology/approachThe analysis covers corn, soybeans, and wheat that are grown in six economic regions and uses various measures of purchasing such as acres insured, unit structure, coverage levels, as well as crop hail use as proxies for the quantity demanded.The analysis first employs time series econometric tools to analyze whether the time path of the share of enterprise units within buyup acres is influenced by the policy change in enterprise unit subsidies. It then comparatively examines the insurance experience between 2008 (right before the change) and 2015 (well after the change).FindingsFor corn, soybean, and wheat, the analysis establishes that the time path of the share of enterprise units within buyup coverage acres is statistically and economically influenced by the intervention. The analysis further quantifies the intervention's immediate and long-term impacts and finds that farmers' unit choices are highly responsive (elastic) to subsidy rates in those units.Between 2008 and 2015, the insurance experience generally indicates that the share of enterprise units within buyup coverage surged, the share of acres under catastrophic coverage declined, and the share acres in high coverage levels increased. Meanwhile, growers have increasingly utilized crop-hail policies.Originality/valueThis appears to be the first study (1) quantifying the sensitivity of farmers' unit choices with respect to subsidy rates in those units and finding that such choices are actually highly responsive (elastic), and (2) pointing out the interaction between MPCI and crop-hail products and offering insights as to their combined use. The findings should be of considerable value to policymakers, academics, bankers, and producers in regards to the design and use of risk management tools.