EX POST MORAL HAZARD IN CROP INSURANCE: COSTLY STATE VERIFICATION OR FALSIFICATION?

This article examines the extent to which actual crop insurance indemnification behavior conforms to the theoretical predictions of two ex post moral hazard models costly state verification and costly state falsification. A nonparametric regression technique is used to estimate the crop insurance indemnification profile for non-irrigated cotton in Texas. The results suggest that indemnification behavior in crop insurance is more in line with the costly state falsification paradigm. Thus, crop insurers seem to indemnify based on the assumption that it is not easy to verify actual ex post loss magnitude and eliminate the asymmetric information held by the insured farmers.Risk and Uncertainty,

Safety Nets or Trampolines? Federal Crop Insurance, Disaster Assistance, and the Farm Bill

We review the implications of the 2007 Farm Bill for the risk management dimensions of U.S. agriculture and policy. Legislative proposals suggest significant changes in risk management policy, including the introduction of state or national revenue insurance. We also pursue an empirical analysis of the interrelationships of crop insurance, disaster relief, and farm profitability. We find an inverse relationship between disaster assistance and insurance purchases. Our analysis also suggests that farmers that buy insurance and that receive disaster payments tend to have higher returns to farming.crop insurance, disaster payments, Farm Bill, Agribusiness, Agricultural and Food Policy, Crop Production/Industries, Risk and Uncertainty, Q18,

DETERMINANTS OF THE VALUE OF SITE-SPECIFIC INFORMATION (SSI) IN AGRICULTURE: A UNIFYING THEORY TO ANALYZE ITS RELATIVE IMPACTS

This paper develops a theoretically consistent behavioral model of farmer decision-making that allows for analysis of the relative impacts of the determinants of SSI value. The model departs from previous literature by assuming that SSI reduces uncertainty, but not eliminate it. Results show that increasing the accuracy (or the "level of informativeness") of SSI, increasing initial wealth, improving management ability to reduce uncertainty in the posterior, and increasing the uncertainty in the prior, increases the value of SSI. Furthermore, mean input use is found to decrease, as SSI becomes more "informative." On the other hand, the value of SSI is found to be decreasing as relative risk aversion increases. These results have policy implications for controlling non-point source pollution from fertilizer inputs and SSI-adoption behavior.Farm Management, Research Methods/ Statistical Methods,

Farmland Control Decisions under Different Intertemporal Risk Behavioral Constructs

Simulation-optimization techniques are employed to analyze changes in farmland control arrangements as a result of using different constructs of intertemporal risk behavior. Risk behavior based on constant absolute risk aversion (CARA) and constant relative risk aversion (CRRA) mean-standard deviation functions are used to achieve this objective. Specfically, a multi-period programming framework for a representative grain farm is developed to explore farmland control decisions under these two behavioral assumptions. Our results suggest that the use of a CRRA behavioral construct in analyzing farmland control decisions produce predictions that are more consistent with observed farm behavior.Farm Management,

Food Calorie Intake under Grain Price Uncertainty: Evidence from Rural Nepal

This study evaluates the effects of grain output price uncertainty on the farm income of rural households and, consequently, how this uncertainty influences caloric intake through changes in farm income. Using a rural household data set, augmented with output price uncertainty measures calculated from historical time-series data, we find that grain output price uncertainty tends to decrease crop production income of rural households. In addition, we find that higher crop income from production increases calorie intake of rural households. Taken together, these results suggests that output price uncertainty during the production process may tend to reduce caloric intake of rural Nepalese households since the price uncertainty negatively affects the crop income households need to buy calorie-rich staple foods.Food Calorie Intake, Price Uncertainty, Nepal, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, D12, O13, Q11, Q12,

Household Vegetable Demand in the Philippines: Is There an Urban-Rural Divide?

A three-step estimation method and a Nonlinear Quadratic Almost Ideal Demand System (NQAIDS) are used to assess the vegetable demand behavior of rural and urban households in the Philippines. The results show that most of the expenditure and own-price elasticities of the vegetables analyzed are near or larger than unitary in both rural and urban areas. For majority of the vegetable commodities, there are no significant differences in the expenditure, own-price, and cross-price elasticities of urban households relative to rural households. Only demand for cabbage and tomatoes in the urban areas tend to be statistically different compared to rural areas. The demand behavior information gleaned from the analysis provides important insights that could help guide nutritional and public policies in rural and urban areas of the Philippines.Community/Rural/Urban Development, Consumer/Household Economics,

Sources of Productivity Growth in Wheat: A Review of Recent Performance and Medium- to Long-Term Prospects

Sources of yield growth in wheat are investigated based on a stylized framework of technical change. Evidence suggests that the relative contribution of input intensification to yield growth has diminished in recent years and is likely to continue to decline in the future. One potential source of yield growth in wheat during the medium to long term is improved efficiency of input use, rather than input intensification, through sustainable wheat production practices rather than pure input increases. Other large gains could be made with continuous adoption of newer and better modern varieties based on advances in wheat breeding. Wide crossing and biotechnology could improve the stability of wheat yields in the intermediate term; their long-term impact on yield under optimal conditions is less certain. World wheat demand is likely to grow more slowly over the next 30 years than it did in the past 30 years. At the same time, a wider variety of technological options will need to be tapped over the next three decades to achieve the necessary gains in wheat yields. Research costs per unit of increased wheat production are likely to be somewhat higher. Nonetheless, continued investment in wheat research is necessary to achieve production levels consistent with constant or slowly declining real world wheat prices.Crop Production/Industries,

OPPORTUNITY COSTS, SHARE LEASING, AND PREVENTED PLANTING CLAIMS IN CROP INSURANCE

This paper determines whether the opportunity costs of share leasing and the share amounts of farmers/tenants affect the likelihood of submitting a prevented planting claim. Results from our probit analysis shows that lower opportunity costs of share leasing and higher farmer/tenant share amount can increase the probability of submitting a prevented planting. These results have potential implications for setting prevented planting buy-up rates and crop insurance compliance procedures.Risk and Uncertainty,

Economics of Management Zone Delineation in Cotton Precision Agriculture

This paper develops a management zone delineation procedure based on a spatial clustering approach and evaluates its economic impact for the case of Texas cotton production. The results show that there is potential economic value in using a spatial approach to management zone delineation, but its value critically depends on the cost of collecting soil test information needed to delineate those zones.Management Zones, Exploratory Spatial Data Analysis, Site-Specific Nitrogen Management, Cotton Precision Agriculture, Crop Production/Industries, Q12,

Can Crop Insurance Premiums Be Reliably Estimated?

This paper develops and applies a methodology to assess the accuracy of historical loss-cost rating procedures, similar to those used by the U.S. Department of Agriculture’s Risk Management Agency (RMA), versus alternative parametric premium estimation methods. It finds that the accuracy of loss-cost procedures leaves much to be desired, but can be markedly improved through the use of alternative methods and increased farm-level yield sample sizes. Evidence suggests that the high degree of inaccuracy in crop insurance premium estimations through historical loss-cost procedures identified in the paper might be a major factor behind the need for substantial government subsidies to keep the program solvent.agricultural subsidies, crop insurance premium estimation, loss-cost procedures, Risk Management Agency, Agricultural and Food Policy, Agricultural Finance, Farm Management, Risk and Uncertainty,