The economics of crop insurance in the U.S. and Israel

Our research program addresses one of the most fundamental and important policy issues currently affecting U.S. and Israeli agriculture - risk management and crop insurance, in particular. This document provides a final report and accounting of output associated with the abovementioned BARD project. The project was productive and generated significant contributions to the understanding of crop insurance in the US and Israel. The first year was devoted for data collection and consolidation of various data sets. This facilitated in the second year coherent econometric analysis and generation of significant research results in the second and third year. In the U.S. the work has focused on fundamental issues pertaining to the design of crop insurance contracts and the accurate measurement and pricing of agricultural risks. Important lessons for the Israeli program are being derived from this research. Specific those results are being used by the USDA’s Risk Management Agency in their management of the U.S. program. The Israeli team devoted the efforts to exploit the introduction of compulsory insurance program to identify and measure the severity of adverse selection in the crop insurance market. In addition, updated methodologies were used to estimate the demand for crop insurance and analyze the welfare implication of government intervention by means of subsidies and mandates. Our results are being used by the Israeli Ministry of Agriculture in the discussions towards the formation of future agricultural policy in Israel and the possibility to extend the crop insurance program. Joint work was undertaken in collaboration with the PIs on the project and a post-doc from Israel and dealt with identification and measurement of moral Hazard and adverse selection. The collaborative research is still ongoing and is expected to produce additional journal articles. The PIs are very grateful for the support furnished by BARD. Our understanding of the operation and implications of subsidized crop insurance in both countries has been significantly advanced as a result of this support. This report focuses on our research accomplishments in both countries.