Category: Micro

That is the title of an interesting new NBER working paper by UC Berkeley’s Ethan Ligon. Here is the abstract:

“The federal government has developed a large number of programs to insure various ‘specialty crops’ over the last two decades; a given program is peculiar to a particular county and crop. This development has been particularly notable in California, because of its size and the diversity of crops produced there.

If the extension of federal crop insurance programs to cover fruit and vegetable production has affected either producer or consumer welfare, then we would expect to see this reflected in output and prices. Exploiting variation in the timing of program introduction in different locations for different crops to estimate the effect of crop insurance on the output and prices of the insured crops.

We find that the supply of and demand for insurance for tree crops is much larger than for non-tree crops. Crop insurance has a small but significant negative effect on prices of insured crops. This last finding is consistent with the view that demand for such highly disaggregated commodities is likely to be highly elastic. A consequence is that crop insurance for these specialty crops has little benefit for consumers, even when it generates a large supply response.”

What are the implications of these findings for food policy? For starters, given that consumers — who pay for crop insurance programs via their income taxes — vastly outnumber producers, and given that the welfare impacts of these specialty crop insurance programs on consumers seem negligible, the effect on aggregate welfare is not entirely clear, but one cannot rule out the possibility that these specialty crop insurance programs actually decrease aggregate welfare. Given the political economy of food prices, this should not be surprising to readers of this blog.

I unfortunately could not find an ungated version of this paper. I would gladly link to one if a reader knows of such an ungated version.