Producer heterogeneity, insurance decisions and economic impacts of crop insurance

This paper introduces the empirically relevant heterogeneity/differences in producer attitudes towards risk into the analysis of the economic impacts of crop insurance. Analytical results show that individual producer risk attitudes matter. Specifically, our study shows that the producer insurance decisions, the market shares of the different insurance options, and the welfare impacts of crop insurance are very much dependent on the producer aversion to risk as well as the risk exposure faced by producers, the reduction in this risk exposure offered by crop insurance, and the crop insurance premiums. Maintaining the status quo will further exacerbate regional differences in the economic impacts of crop insurance. A policy meant to establish a correlation between premium subsidies and regional risk factors could help mitigate differences in economic impacts across regions and between crops.