@article{Feng:151284,
      recid = {151284},
      author = {Feng,   Hongli and Du,   Xiaodong and Hennessy,   David  A.},
      title = {An Analysis of Farmers' Insurance Choices and Federal Crop  Insurance Subsidies},
      address = {2013},
      pages = {37},
      year = {2013},
      abstract = {The U.S. crop insurance has two distinct features that set  itself apart from insurance in other areas: (i) it is  explicitly subsidized with an average premium subsidy rate  of about 60 percent in recent years; and (ii) the law  requires the premium rate be set at actuarially fair level  with the federal government paying the administrative and  operational costs related to the sale and service of  insurance policies. Bearing in mind these features, we  examine to what extent farmers’ crop insurance choices  conform to economic theory and estimate the implications of  changes in premium subsidy structure. A standard expected  utility maximization framework is set up to analyze the  trade-offs between higher risk protection and larger  subsidy payment. We show that, given actuarially fair  premium, a rational farmer will choose the coverage level  with the highest premium subsidy or a higher coverage  level. With a large insurance unit level data, we fail to  find empirical support for this theoretical results, which  suggest a possible “anomaly” in insurance decisions.  Estimation through mixed logit models reveals that  out-of-pocket premium has a negative impact on the  probability of an insurance product being chosen.},
      url = {http://ageconsearch.umn.edu/record/151284},
      doi = {https://doi.org/10.22004/ag.econ.151284},
}