The Budgetary and Producer Welfare Effects of Revenue Insurance

Legislation passed in 1996 changed the way the U.S. federal government acts to reduce risks faced by U.S. crop products. The authors compare the new, alternative forms of revenue insurance to the 1990 deficiency payment program and to a ''no-program'' alternative. They estimate the effects of the alternative polices on the acreage allocations of a representative farm, on the expected government cost, and on producer welfare. Simulation results indicate that a revenue insurance scheme that guarantees 75 percent of expected revenue to risk-averse produced could provide approximately the same level of benefits as the 1990 program, at as little as one-fourth the cost. Disciplines Agricultural and Resource Economics | Agricultural Economics | Economic Policy | Economics This article is available at Iowa State University Digital Repository: http://lib.dr.iastate.edu/card_workingpapers/174 The Budgetary and Producer Welfare Effects of Revenue Insurance David A. Hennessy, Bruce A. Babcock, and Dermot J. Hayes Working Paper 97-WP 180 June 1997 The Budgetary and Producer Welfare Effects of Revenue Insurance David A. Hennessy, Bruce A. Babcock, and Dermot J. Hayes Working Paper 97-WP 180 Revision of95-WP 130 June 1997 Center for Agricultural and Rural Development Iowa State University Ames, lA 50011-1070 David Hennessy is an assistant professor of economics, Iowa State University; Bruce Babcock is an associate professor of economics, Iowa State University, and head of the Resource and Environmental Policy Division, CARD; and Dermot Hayes is a professor of economics, Iowa State University, and head of the Trade and Agricultural Policy Division, CARD. Contact author: Bruce Babcock, (515)294-5764; e-mail, [email protected].