The United States spends billions annually on crop insurance premium subsidies, yet the prevailing distance-based guarantee design unintentionally rewards risk-taking
by linking subsidies to yield variability. We consider a simple redesign: define guarantees in terms of probability so that coverage reflects a consistent likelihood of indemnity.
Using U.S. data, this probability-based approach would reallocate about $3.3 billion in annual subsidies from high-risk to low-risk production, reducing regional disparities by two-thirds without changing total subsidies. Because most publicly subsidized crop insurance programs around the world share this structure, adopting probability-based guarantees could help realign agricultural production toward more resilient and sustainable regions and practices.
