THE FEDERAL CROP INSURANCE PROGRAM - AN EMPIRICAL ANALYSIS OF REGIONAL DIFFERENCES IN ACREAGE RESPONSE AND PARTICIPATION

The extent to which crop insurance programs have resulted in additional land being brought into production has been a topic of considerable debate. We extend a multi-equation structural model of crop acreage response, insurance participation, CRP enrollment, and input usage developed in Goodwin and Vandeveer (2000) to wheat and barley production in the "Northern Great Plains" region. We also update earlier results for corn and soybean production in the "Heartland" region. Our results confirm earlier findings that increased participation in insurance programs provoke a statistically significant acreage response. This response is, however, relatively modest. We find that cross-the-board decreases of 50% in insurance premiums significantly increase participation but result in acreage increases of about 0.5% for barley and 3.7% for wheat. In the modern period (1997-1998),expanded insurance participation brought about by premium rate reductions has almost no effect on acreage. Our results for the recent period show a shifting in coverage toward revenue insurance.