Peer Reviewed Publications
Utilizing large‐scale insurance data sets to calibrate sub‐county level crop yields - Crop yields are crucial for research on agricultural risk and productivity but are typically only available at highly aggregated levels. Yield data at more granular levels of observation have the potential to enhance econometric identification and improve statistical power but are typically inaccessible. Crop insurance contracts offered via the US Federal Crop Insurance Program (FCIP) are priced, in part, based on past yields of the farm meaning year-to-year variation in premium rates has the potential to provide insight into how yields vary over time. This paper introduces methods to use observed FCIP rating parameters to calibrate yields for insurance transactions lacking such data. These methods are validated with 148,243 farm-level observations from Kansas for which yields are known. The calibrated yields are applied empirically to examine the impact of asymmetric information in the FCIP via choice of insurance unit structure and the extent to which legislative changes mitigated this effect.
Actuarial Implications of Prevent Plant Coverage - Within the Federal Crop Insurance Program (FCIP), prevented planting (PP) coverage provides payments for pre-planting costs associated with crops that ultimately cannot be planted due to adverse weather. PP indemnities, which are not considered production losses within the FCIP rating methodology, influence premium rates differently than typical losses. This study utilizes a panel data set consisting of approximately 77,697 county level observations from RMA’s summary of business to identify the relationship between the prevalence of prevent plant use and a number of actuarial related outcomes. Overall, we find that increases in the share of total indemnities attributable to PP claims over the preceding 10 years produce generally negligible changes to loss ratios, but can significantly increase loss ratios among subsets of the FCIP that heavily utilize PP coverage (greater than 20% of total indemnities). This suggests that, despite loss ratios being robust to typical rates of PP claims, actuarial performance can degrade when PP payments are high relative to indemnities from all other perils. Additionally, a simulation is conducted in which prevent plant indemnities are counterfactually treated as production losses when pricing FCIP contracts as opposed to current practice of recovering prevent plant costs via a fixed rate load. Doing so suggests significant improvements in loss ratios for crops that have historically had high shares of prevent plant indemnities, however, these improvements come at the expense of higher premiums and reduced demand for crop insurance.
Flood risk perceptions: Accuracy, determinants, and the role of probability weighting - This study analyzes survey data of US East Coast homeowners to characterize accuracy and determinants of homeowner flood risk (mis)perceptions. Using an array of instruments, we assess subjective risk perceptions and compare them to objective risk estimates. Reduced-form regressions suggest flood experience, worry, and flood zone classification influence relative perceptions of risk. Common probability weighting functions do not fit the divergence in risk perceptions, suggesting that the source of the probability distortions is most likely due to misperceiving the true risk rather than a widespread behavioral heuristic.
The Crop Insurance Demand Response to Premium Subsidies: Evidence from U.S. Agriculture - Premium subsidies are a common policy tool to promote crop insurance participation in many countries. However, the relationship between subsidies and demand is not entirely obvious given the variation in the use of subsidies and crop insurance participation within the international crop insurance landscape. Focusing on the U.S. Federal Crop Insurance Program (FCIP) demand is modeled as a system of equations representing decisions at the intensive [coverage level] and extensive [net insured acres] margins. The model makes use of an identification strategy that leverages exogenous variation in government-set pricing policy to address potential sources of endogeneity. Applying the model to over one million insurance pool level FCIP observations spanning two decades (2001–2022) suggest an inelastic response at both extensive and intensive margins to changes in producer-paid premium rates with the response to premium rates becoming increasingly more elastic as subsidies decrease. These estimated elasticities are on the low end compared to previous literature, however, significant heterogeneity across commodity, production practices, policy type, and location are observed suggesting subsets of producers are likely to respond to changes in the cost of insurance in different ways.
Econometric identification of crop insurance participation - This paper shows how econometric identification can be improved in studies making use of crop insurance participation as either an independent or dependent variable. The paper provides the reader with a succinct overview of how crop insurance contracts are priced and how to use publicly available data to derive a novel composite crop insurance design parameter that emulates existing crop insurance rating parameters using a procedure that is based on current actuarial practices. The derived design parameter performs well at predicting historic crop insurance loss-cost ratios and satisfies the requirements for an instrumental variable for a variety of empirical applications related to crop insurance. Representative empirical examples are presented where it is shown that the proposed instrument has favorable two-staged least squares diagnostic tests and is effective at eliminating endogeneity bias.
The crop insurance demand response to the Wildfire and Hurricane Indemnity Program Plus - Previous literature has suggested that ad hoc disaster aid can crowd out demand for residential flood insurance. However, this phenomenon remains relatively unexplored in the agriculture insurance sector. In this paper, we focus on the most recent ad hoc disaster aid program for US agricultural producers, the Wildfire and Hurricane Indemnity Program Plus (WHIP+). Using county‐level data on WHIP+ payments, we find support for the program crowding out demand for crop insurance. However, we find the issue to be nuanced, noting that the demand response to WHIP+ payments is subject to heterogeneity across several dimensions including commodity, insurance plan, and coverage level.
Hedonic property prices and coastal beach width - Previous research suggests that coastal housing values capitalize the quality of nearby beaches but note potential problems related to measurement errors and reverse causation due to beach replenishment. We offer the first hedonic analysis of communities not engaged in beach replenishment, obviating concern over reverse causation. Statistical evidence supports hedonic specifications that account for proximity to the shoreline, though marginal willingness to pay (WTP) varies with the specification. Using an instrumental variables approach, we find significant downward bias in ordinary least squares estimates of marginal WTP derived from the sale of vacant lots compared to two-stage least squares estimates on the same vacant lots. Notably, we do not find evidence of the same downward bias in WTP derived from the sale of existing homes.
Willingness to Pay for Multi-peril Hazard Insurance - Increasing the number of insured assets in high-risk areas can help reduce the need for federal disaster aid and help communities rebuild quicker following a disaster event. Offering a bundled multi-peril homeowners’ insurance product may be one way to do this. Using individual-level survey data, we assess demand for a hypothetical multiperil insurance product and estimate a mean annual willingness to pay of $4,397. Both quantitative and qualitative analysis point to cost being the primary concern for adoption, however, reducing cognitive burden and uncertainty in the claims filing process appear to be important factors that appeal to homeowners.
Flood Insurance Market Penetration and Expectations of Disaster Assistance - Concern over resilience to natural disasters often focuses on moral hazard; expectations of disaster assistance may lead households in hazard-prone communities to forego insurance. This has been dubbed “charity hazard” in the literature on natural disasters. We examine flood insurance uptake using household level survey data and employ instrumental variables (related to local history of aid distribution and political economy) to address endogeneity of individual expectations of eligibility for disaster assistance. To avoid potential problems with reverse causation, we drop any households that could have received payments in the past (triggering mandatory flood insurance purchase). We find coastal households that exhibit positive expectations of disaster aid eligibility are 25 to 42 percent less likely to hold flood insurance. We estimate that charity hazard could be responsible for 817,000 uninsured homes in the United States corresponding to a loss of $526 million in forgone annual revenue for the National Flood Insurance Program.
How Has the COVID-19 Pandemic Affected Outdoor Recreation in the U.S.? A Revealed Preference Approach - This study examines the effects of the COVID-19 pandemic on outdoor recreation trips and values using revealed preference data in the context of travel cost method. Demand models are estimated using data on pre- and postpandemic trips reported in a nationwide survey of recreation participants. The models incorporate related subjective risk perceptions as postpandemic measures of site quality and account for household-level factors, pre-existing conditions, and risk tolerance. Our results suggest that the pandemic had negative effects on recreation visits and values, with risk-tolerant households and households with pre-existing conditions taking more trips.
Risk Perceptions and Flood Insurance:Insights from Homeowners on the Georgia Coast - Scholars highlight a wide array of factors that can influence individual decision-making under risk. Utilizing survey data, we explore many potential factors that affect risk perception and protective behaviors. Our focus is on coastal Georgia, which has lower historical risk relative to the rest of the Southeast U.S., and which many people perceive as relatively safe, but was recently adversely affected by two major storms. The results indicate a majority of coastal residents expect coastal storms and other hazards to be worse in the future. The regression results suggest perceived damages, risk tolerance, wealth exposure, and flood zone are robust determinants of flood insurance purchase. Other factors, like flood zone awareness and attitudes towards community risk management initiatives—like shoreline armoring, beach replenishment, and coastal retreat—are also indicated to have a high correlation with flood insurance purchase.
Food Waste and Food Retail Density - This paper examines the relationship between food retail density and municipal solid waste. We test for correlations between the volume of solid waste and the number of food-at-home retailers (e.g., grocery stores) and food-away-from-home retailers (e.g., restaurants) at the county level in the state of Mississippi over 2007–2012. Since food scraps comprise the largest share of post-recycling municipal solid waste in the United States, we control for the overall level of economic activity to account for other sources of solid waste, as well as demographic factors, county, and time effects. We find that increases in food-at-home retailer density are negatively correlated with solid waste volume. Conversely, we find that increases in the number of food-away-from-home retailers lead to more waste. While we do not explicitly investigate the mechanisms, we discuss possible avenues such as increased food access in the case of food at home, and increased portion sizes and substitutability in the case of food away from home.
Working Papers
Accounting for Uncertainty in Decision Weights for Experimental Elicitation of Risk Preferences - In the generalized expected utility framework, the multiplicative relationship between preferences and beliefs complicates the identification of risk preferences. In experimental or field settings, the respondent's decision weight (subjective probability) must be known to infer accurate risk preferences. We propose a novel Monte-Carlo based method for expressing uncertainty in the individual's decision weight as uncertainty in their inferred risk aversion coefficient. We implement this procedure on experimentally elicited risk preferences obtained via a mail survey and show that this procedure improves model fit when risk preferences are used as a determinant of behavior in a reduced-form model of insurance demand.
Other Articles and Reports
Recent Developments in Ad Hoc Assistance Programs for Agricultural Producers - Ad hoc assistance programs that specifically target agricultural producers are occasionally authorized to provide support in the event of natural disasters or unprecedented market conditions. Assistance delivered by the U.S. Department of Agriculture through these programs grew substantially from 2017 to 2021 but then declined in 2022. This report provides an overview of developments in ad hoc assistance programs for agricultural producers implemented between 2017 and 2022, including the event that prompted each program, payment eligibility conditions and calculations, and other program design features as well as an analysis of trends in budgetary expenditures.
Federal Programs for Agricultural Risk Management - This report provides a broad overview of the Federal programs that are designed to help agricultural producers manage risks to income or profitability caused by natural and economic forces.
Crop Insurance at a Glance - A brief article detailing some of the basics of U.S. crop insurance.