Systemic risk, relative subsidy rates, and area yield insurance choice

We investigate the nature of crop yield systemic risk and its implications for farmers' area insurance choices. A theory-grounded, normalized measure risk, R2, is developed made amenable to empirical analysis through logit link. The estimated on a large-scale, unit-level corn dataset. find that explains less than half total unit variability average, suggesting management effectiveness low. By relating natural resource endowments with we more excessive heat drought events lead larger while precipitation smaller risk. then study whether current subsidy rates provide farmers sufficient transfers compensate uncovered exposure associated insurance. new concept, threshold relative rate (TRASR), quantifies lower bound ratio over individual below which risk-averse should always prefer calibrated TRASR values indicate discourage from choosing insurance, especially at low coverage levels. also positively correlated analysis, who like insurance's features will dislike transfer vice versa.