The Empirical Relationship Between Federally-Subsidized Crop Insurance and Soil Erosion

Abstract

This study examines the impact of federally-subsidized crop insurance and government program payments on soil erosion. Specifically, this study analyzes the impact of those programs on production decisions, such as acreage allocation and input use, and the resulting impact on soil erosion. The first essay investigates the "conventional wisdom" that economically marginal land is also environmentally fragile (i.e., highly erodible). We address this issue by looking at the distribution of crop yields across erodibility classes and by performing regression analysis. Our results indicate that land with higher levels of soil erodibility exhibit lower mean crop yields, a proxy for economic marginality, which lends support to the conventional wisdom. The second essay nvestigates the impact of federally-subsidized crop insurance on acreage allocation and input use in the primary cotton growing regions in the United States. Using county-level data from the 1990-1995 and 1996-2000 time periods, we find that the acreage response to insurance participation, though statistically significant, is quite inelastic. The results of simulations that we conducted indicate that large premium rate reductions would generate significant changes in insurance participation, but those changes would not result in large changes in planted acreage. The third essay investigates the relationship between specific government agricultural programs and soil erosion. Using county-level data from the years 1992 and 1997, we estimate a model of soil erosion and crop insurance participation. We find that crop insurance participation and conservation payments are significantly associated with county average soil erosion levels, while other program payments, e.g., deficiency and AMTA payments, exhibit no statistically significant association with our soil erosion measure.