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Recency effects and participation at the extensive and intensive margins in the U.S. Federal Crop Insurance Program

  • Yuyuan CheEmail author
  • Hongli Feng
  • David A. Hennessy
Article

Abstract

Participation in the U.S. Federal Crop Insurance Program (FCIP) has increased over time at both extensive (insured acres) and intensive (coverage level) margins, but there are clear spatio-temporal variations in these trends. Farmers’ decisions are likely influenced by recent indemnity or weather experiences (i.e., recency effects). We develop a model to identify two channels through which recent adverse weather experiences may affect participation, one where the weather shocks directly affect participation and the other where they affect participation through indemnity payouts. With historic FCIP data over the period 2001–2017, we use parametric and non-parametric methods to estimate these effects. At both extensive and intensive margins, higher past indemnities are found to encourage participation. This provides evidence that prior adverse weather shocks work indirectly. Less evidence is found in favour of direct weather effects. We also find that the increase in participation due to indemnities peaks in the year following a loss.

Keywords

Coverage level Direct and indirect responses Event study Recency bias Weather shocks 

Notes

Acknowledgements

This research was partly funded by Michigan State University’s Elton R. Smith Chair of Food and Agricultural Policy. Without implication, the authors benefitted from comments made by Scott Swinton and seminar participants at AAEA Meetings—Chicago 2017, Michigan State University 2019, and SCC-76 Kansas City 2019—as well as comments from the journal editor and referees.

Supplementary material

41288_2019_147_MOESM1_ESM.docx (620 kb)
Supplementary material 1 (DOCX 620 kb)

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Copyright information

© The Geneva Association 2019

Authors and Affiliations

  1. 1.Department of Agricultural, Food & Resource EconomicsMichigan State UniversityEast LansingUSA
  2. 2.Department of Agricultural, Food & Resource EconomicsMichigan State UniversityEast LansingUSA
  3. 3.Department of Agricultural, Food & Resource EconomicsMichigan State UniversityEast LansingUSA

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