Crop Insurance Subsidies and Environmental Externalities: Evidence from Southern Italy

Abstract

Rapid environmental changes can affect agriculture by introducing additional sources of uncertainty. Conversely, policy interventions to help farmers cope with risks can induce strong impacts on the environment. In this paper, the authors evaluate the effects of public risk management programmes, particularly subsidies on crop insurance, on fertilizer use and land allocation. They implement a mathematical programming model based on data collected from 1,092 farms in the Puglia region of southern Italy. The results show that, under the current crop insurance programmes, input use is expected to increase, while the effect on production is likely to be crop-specific. The policy and environmental implications of subsidies on crop insurance are discussed.