CHEMICAL AND FERTILIZER APPLICATIONS IN RESPONSE TO CROP INSURANCE: EVIDENCE FROM CENSUS MICRO DATA

This paper presents preliminary evidence on the effect of crop insurance on fertilizer and chemical inputs in agriculture. Our estimates are based on two sources of identification that emerge from a policy change concerning insurance subsidies that approximately doubled total premiums and the share of acres insured. First, we compare per-acre applications on these inputs from the same farms before and after the policy change. Second, we compare farm-level changes in input applications to differential changes in coverage growth induced by the policy change. We are able to make this second comparison because farms in some regions were more heavily insured than others before the policy change so they were not required to increase coverage in order to obtain the subsidy. Thus, the policy change caused some farms to increase coverage more than others. We find that the insurance subsidies induced modest reductions in fertilizer and chemical applications on tobacco and cotton crops and a modest increase in chemical applications on corn.