Is moral hazard good for the environment? Revenue insurance and chemical input use

Ashok K. Mishra, R. Wesley Nimon, Hisham S. El-Osta

Research output: Contribution to journalArticle

27 Scopus citations

Abstract

Using farm level data we evaluate the input use and environmental effects of revenue insurance. A priori, the moral hazard effect on input use is indeterminate. This paper empirically assesses the input use impact of the increasingly popular, and federally subsidized, risk management instrument of revenue insurance and the extent to which its effects on input use may differ from those of the older yield based instruments. We conclude that among winter wheat farmers, those who purchase revenue insurance tend to spend less on fertilizers but do not appreciably alter pesticide expenditures. Thus, any improved environmental outcomes due to crop insurance are likely due to reduced fertilizer not pesticide use. When the environmental indicators included indicated a potential environmental fragility (i.e. high erosion, pesticide leaching or pesticide runoff potential), the input use equation suggested that fertilizer expenditures decreased. Revenue insurance undoubtedly further reduces fertilizer applications on these fields as well, but the marginal environmental benefit of revenue insurance is lessened because the reduction, where it matters most, accrues on land on which fertilizer use has already been curtailed to some degree.

Original languageEnglish (US)
Pages (from-to)11-20
Number of pages10
JournalJournal of Environmental Management
Volume74
Issue number1
DOIs
StatePublished - Jan 1 2005
Externally publishedYes

Keywords

  • Environment
  • Fertilizer use
  • Moral hazard
  • Pesticide use
  • Probit
  • Revenue insurance
  • Sample selection

ASJC Scopus subject areas

  • Environmental Engineering
  • Waste Management and Disposal
  • Management, Monitoring, Policy and Law

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