The effects of policy expectations on crop supply, with an application to base updating

We develop a dynamic model to assess the effects of policy expectations on crop supply and illustrate the approach with estimates of the effects of base updating in U.S. crop programs. For corn and soybeans in the Corn Belt, the effect of base updating is relatively small because relevant crop alternatives are subject to similar policies and the alternatives are substitutes in production. Increasing acreage of one program crop to capture future payments from base updating reduces future payments from the alternative crop. We also use our model to assess the effect of base updating on acreage response to prices

Revenue Risk-Reduction Impacts of Crop Insurance in a Multicrop Framework

The authors develop a multicrop insurance model to evaluate crop insurance decisions when several crops are produced. The results suggest that the diversification effects derived from producing multiple crops can substantially alter the risk-reduction impacts of crop insurance versus if the decision is viewed from the perspective of a single crop. Further, the relatedness of crop production and price responses among crops differs considerably across insurance products and strategies. As a result, insurance strategies that might provide the maximum risk reduction for an individual crop do not necessarily carry over to the multicrop case. Copyright 2010, Oxford University Press.