Working Paper: NBER ID: w16709
Authors: Ethan Ligon
Abstract: The federal government has developed a large number of programs to insure various "specialty crops" over the last two decades; a given program is peculiar to a particular county and crop. This development has been particularly notable in California, because of its size and the diversity of crops produced there.\n\nIf the extension of federal crop insurance programs to cover fruit and vegetable production has affected either producer or consumer welfare, then we would expect to see this reflected in output and prices. Exploiting variation in the timing of program introduction in different locations for different crops to estimate the effect of crop insurance on the output and prices of the insured crops.\n\nWe find that the supply of and demand for insurance for tree crops is much larger than for non-tree crops. Crop insurance has a small but significant negative effect on prices of insured crops. This last finding is consistent with the view that demand for such highly disaggregated commodities is likely to be highly elastic. A consequence is that crop insurance for these specialty crops has little benefit for consumers, even when it generates a large supply response.
Keywords: crop insurance; specialty crops; producer welfare; consumer welfare
JEL Codes: D2; Q12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of crop insurance for tree crops (Q17) | increase in output (E23) |
| introduction of crop insurance for nontree crops (Q18) | output effect is statistically indistinguishable from zero (C29) |
| introduction of crop insurance (G52) | increase in supply for tree crops (Q23) |
| increase in supply for tree crops (Q23) | price adjustments (L11) |
| crop insurance (G52) | negative effect on prices of insured crops (Q11) |
| highly elastic demand for insured crops (Q11) | small negative effect on prices (D41) |