The Impact of the Average Crop Revenue Election (ACRE) Program on the Effectiveness of Crop Insurance

This paper analyzes the effect of the ACRE program adopted in the final version of the 2007 Farm Bill on the risk-reducing effectiveness of insurance products. To the best of our knowledge this is a first attempt to analyze the effect of the ACRE program on the risk management decisions of crop producers. In particular, we compare the risk-reducing effectiveness of the two most common insurance contracts — APH and CRC — under the provisions of the 2002 Farm Bill and under ACRE program for representative cotton producer in Texas and corn producer in Illinois. These particular crop/region combinations are selected so as to represent situations of low and high price-yield correlations, respectively.