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Are Added Land and New Producer Provisions in Crop Insurance Vulnerable to Abuse? Implications for Insured Texas Cotton Producers

Roderick M. Rejesus, Ashley C. Lovell, Stacey A. Olson, and Jill A. Halfmann

ABSTRACT

Reducing crop insurance program vulnerabilities is important to the welfare of Texas cotton producers because excessive losses due to the abuse of these vulnerabilities may result in crop insurance premium increases. This study analyzes the added land and new producer provisions in crop insurance and evaluates whether these provisions are vulnerable to abuse. The vulnerability of the added land and new producer provisions primarily stems from the informational advantage held by the producer with regards to the inherent productive capacity of his land. A descriptive analysis of data from insured Texas cotton producers showed statistically higher indemnity-to-premium (IP) ratios for producers utilizing the added land and new producer provisions, compared to producers using actual production history. This result suggests that the added land and new producer provisions are vulnerable to abuse and there is a need for policy makers to reassess these provisions. Several policy options are suggested in this paper to help ameliorate the vulnerability of the added land and new producer provisions.





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Document last modified April 16, 2003