Effect of Insurance Subsidies on Agricultural Land-Use

Abstract

This paper investigates the effect of crop insurance-subsidies on agricultural land-use allocation. Since the objective of crop insurance is to help farmers with risk management, the expected profit from crop production under crop insurance might be improved, leading farmers to allocate more land to crop production. In this paper, agricultural land-use type is classified by irrigated/unirrigated farmland and cropland/woodland/pastureland. The data come from counties from all the continental states. Considering the fractional outcome of land-use share, we apply a multinomial-fractional-logit model to estimate the effects. The results show that insurance subsidies have a significant effect on land-use allocation. An increase in insurance subsidies increases farmland-share, indicating insurance subsidies could be an efficient tool to adjust agricultural land-use allocation.