The Center for Agricultural and Rural Development at Iowa State Univ releases a report on crop insurance selection by growers. The authors say “Given an actuarially fair premium, a rational farmer should choose either the coverage level with the highest premium subsidy or a higher coverage level.”
But they say, “Scrutiny of contract choice data shows that farmers underinsure their crops…A mixed logit model suggests that behavior is motivated by aversion to incurring out-of-pocket premiums.” So, the desire to conserve cash seems to outweigh the gov’t paying 62 cents of each $1 in premium.
By the way, farmers have insured 85.3 mln ac as of this week, early in the growing year, says data from the Risk Management Agency. Some 295 mln ac were insured last year with indemnities of $10.9 bln to date, down from the $17.4 bln paid on drought-hit 2012 crops.