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Michigan State University (2022)

THREE ESSAYS ON RISK MANAGEMENT AND IRRIGATION WATER DEMAND IN AGRICULTURE

Lu, Pin

Titre : THREE ESSAYS ON RISK MANAGEMENT AND IRRIGATION WATER DEMAND IN AGRICULTURE

Auteur : Lu, Pin

Etablissement de soutenance : Michigan State University

Grade : Doctor of Philosophy Agricultural, Food, and Resource Economics— 2022

Résumé partiel
Both extensive (share of insured acres in total insurable acres) and intensive (coverage level choice) margin participation rates in the U.S. crop insurance program have increased due to generous subsidies. On a national scale, this program has been well rated to satisfy the actuarial fairness requirement by USDA Risk Management Agency. However, sizeable spatial heterogeneity remains across the Great Plains and Corn Belt regions. If subsidies were to be reduced in the future because of financial constraints, such heterogeneity might be detrimental to the sustainability of the crop insurance program. A central theme of this dissertation is to investigate how farmers make participation decisions when risk factors exist. In a separate but related line of work, this dissertation also explores the irrigation water usage in the Great Lakes region because farmers’ irrigation behavior reflects their risk preferences and impacts their incentives for enrolling in the program. The dissertation consists of three essays on farmers’ decisions regarding premium mispricing, basis risk, and irrigation water usage. The first essay proposes a novel resampling procedure to estimate farm-level actuarially fair premiums. The resampling procedure mainly contains two parts : (i) semi-parametric quantile regression ; and (ii) rejection method. Many previous studies explore whether county-level mispricing exists based on the historical loss ratio records. However, we can identify farm-level mispricing by imputing actuarially fair premiums based on historical yield records, consistent with theory. We find that farmers with lower land quality cropland paid fewer premiums than they should, but a contrary case happens for farmers with higher land quality cropland. Empirical evidence shows farmers may be more concerned about mispricing than subsidy transfer. Regression results support a conclusion that such farm-level mispricing deters farmers’ crop insurance demand.

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Page publiée le 2 décembre 2022