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Did the Federal Crop Insurance Reform Act Alter Farm Enterprise Diversification?
Author(s) -
O’Donoghue Erik J.,
Roberts Michael J.,
Key Nigel
Publication year - 2009
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.2008.00166.x
Subject(s) - crop insurance , subsidy , diversification (marketing strategy) , agricultural diversification , reform act , census , agriculture , panel data , agricultural economics , business , economics , geography , econometrics , market economy , population , demography , archaeology , marketing , sociology
We estimate how much United States farms changed enterprise diversification in response to a marked increase in crop insurance coverage brought about by the 1994 Federal Crop Insurance Reform Act, which substantially increased insurance subsidies. The analysis exploits farm‐level panel census data to compare farm‐specific changes in enterprise diversification over time. By examining diversification decisions of the same farms over time, we control for time‐invariant unobserved individual heterogeneity. We then use pooled cross‐sectional data from the United States Department of Agriculture (USDA) Agricultural Resource Management Survey to estimate the relationship between farm diversification and average returns. We find that the insurance subsidies caused a modest increase in enterprise specialisation and production efficiency. Estimated efficiency gains are far less than the subsidies.