Article
Recency effects and participation at the extensive and intensive margins in the U.S. Federal Crop Insurance Program
The Geneva Papers on Risk and Insurance - Issues and Practice
(2020)
Abstract
Participation in U.S. Federal Crop Insurance Programs (FCIP) has increased over time at both
extensive (insured acres) and intensive (coverage levels) margins, but clear spatio-temporal
variations exist in these trends. Farmers’ decisions are likely influenced by recent indemnity or
weather experiences (i.e., recency effects). We develop a model to identify two channels through
which recent adverse weather experiences may affect participation, one where weather shocks
directly affect participation and the other where they affect participation through indemnity
payouts. With historic FCIP data over 2001-2017, we use parametric and non-parametric methods
to estimate these effects. At both extensive and intensive margins, higher past indemnities are
found to encourage participation. This provides evidence that prior adverse weather shocks work
indirectly. Less evidence is found in favour of direct weather effects. We also find that the increase
in participation due to indemnities peaks in the year following a loss.
Keywords
- Coverage level,
- Direct and indirect responses,
- Event study,
- Recency bias,
- Weather shocks
Disciplines
Publication Date
January, 2020
DOI
10.1057/s41288-019-00147-5
Publisher Statement
This is a manuscript of an article published as Che, Y., Feng, H. & Hennessy, D.A. Recency effects and participation at the extensive and intensive margins in the U.S. Federal Crop Insurance Program. Geneva Pap Risk Insur Issues Pract 45, 52–85 (2020). doi:10.1057/s41288-019-00147-5. Posted with permission.
© 2021 Springer Nature Switzerland AG
Citation Information
Yuyuan Che, Hongli Feng and David A. Hennessy. "Recency effects and participation at the extensive and intensive margins in the U.S. Federal Crop Insurance Program" The Geneva Papers on Risk and Insurance - Issues and Practice Vol. 45 (2020) p. 52 - 85 Available at: http://works.bepress.com/hongli-hennessy/69/