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Purpose – The purpose of this paper is to use simulation analysis to assess farmer choice between crop insurance and supplemental revenue options as proposed during development of the Agricultural Act of 2014. Design/methodology/approach – The certainty equivalent of wealth is used to rank farm choices and assess the effects of supplemental revenue options on the crop insurance plan and coverage level chosen by the producer under a range of farm attributes. The risk-reducing effectiveness of the select programs is also examined through their impact on the farm revenue distribution. The dependence structure of yield and prices is modeled by applying copula techniques on historical data. Findings – Farm program supplemental revenue programs generally have no effect on crop insurance choices. Crop insurance supplemental revenue programs typically reduce crop insurance coverage at high coverage levels. An individual plan of crop insurance combined with a supplemental revenue insurance plan may substitute for incumbent area crop insurance plans. Originality/value – The analysis provides insights into farmers’ possible choices by focussing on alternative crops and farm attributes and extensive scenarios, using current data, crop insurance plans and programs contained in the 2014 Farm Bill and related bills. The results should be of value to policy officials and producers in regards to the design and use of risk management tools.

We theoretically examine a farmer's optimal use of area and individual crop insurance when area and individual losses are positively but imperfectly correlated. If premium rates for both plans are actuarially fair,the farmer will demand full individual insurance and no area insurance. If area insurance is free and individual insurance is offered at an actuarially fair rate, area insurance replaces a portion of individual insurance demand. If individual insurance is offered as a wrap around the area plan at an actuarially fair rate and area insurance is free, the farmer will demand excess individual insurance and some area insurance. Copyright 2012, Oxford University Press.

Since 1980, the principal form of crop loss assistance in the United States has been provided through the Federal Crop Insurance Program. The Federal Crop Insurance Act of 1980 was intended to replace disaster programs with a subsidized insurance program that farmers could depend on in the event of crop losses. Crop insurance was seen as preferable to disaster assistance because it was less costly and hence could be provided to more producers, was less likely to encourage moral hazard, and less likely to encourage producers to plant crops on marginal lands. Despite substantial growth in the program, the crop insurance program has failed to replace other disaster programs as the sole form of assistance. Over the past 20 years, producers received an estimated $15 billion in supplemental disaster payments in addition to $22 billion in crop insurance indemnities.

Current policies and programs affecting the supply of food are examined and options assessed for changes that would help generate a food supply consistent with the US population eating according to the Dietary Guidelines for Americans. Potential policy and program changes are identified in three categories: eliminating existing domestic farm and trade program limitations on the US food supply; creating incentives or disincentives, such as taxes or subsidies, to produce foods consistent with the Dietary Guidelines; and influencing consumers directly to choose foods consistent with the Dietary Guidelines. Despite the trend toward liberalization, there remain a few changes in farm and trade policy that would increase consumption of under-consumed foods. Taxes and subsidies are difficult to apply without creating unintended adverse consequences, although removal of production input constraints may be effective. Strategies to influence consumer behavior have advantages over policies designed to affect supplies of foods. Rather than large program interventions, changes in consumer tastes and preferences would drive market forces to efficiently produce the needed food supply.

One of the key characteristics of agriculture is the inherent production risks facing producers from adverse weather, pests, and diseases. These risks have been used to justify government intervention in the form of disaster assistance payments, emergency loans, livestock feed assistance programs, crop insurance, and other subsidized assistance schemes. Yet while government intervention to provide assistance has been widely supported in the United States, the form of assistance has been much debated.

Various classes of models possess characteristics essential for commodity analysis. One class, input-output (I-O) models, can complement more widely used ommodity models, such as econometric and mathematical programming, which are often directed at a few specific production and use markets for the commodity under analysis. I-O models either formally linked with, or used independently of, these other models provide an analytical framework for examining macroeconomic adjustments to commodity market shocks. Further, I-O allows the tracing of resource flows to and from the commodity market and among all secondary markets. These characteristics suggest that a commodity-oriented I-O model ought to be a component of a package of models designed to provide complete coverage of a commodity for economic analysis.

A model was developed to assess recent effects of exchange rate changes, inflation, and price insulation policies on real U.S. commodity prices. Exchange rate effects are defined so that they can occur and be significant under either fixed or floating rate regimes. The results indicate exchange rate effects on real U.S. commodity prices are smallest under free trade and real commodity price insulation policies but rise substantially as nominal price insulation policies become more prevalent.

Johnson and Tweeten (1967, 1977) have provided estimates of the elasticity of export demand for specific agricultural commodities and aggregate agricultural exports. These estimates indicate the aggregate export demand for U.S. agricultural commodities is very elastic with respect to price, and the estimated elasticity is somewhat greater than 6.0 in both cases. The elasticities of export demand for specific commodities are also very large, ranging from -2.8 for soybeans to 10.18 for feed grains (Johnson). Theoretically, the elasticity of export demand may be quite large. However, the Johnson-Tweeten estimates do not consider government policies which insulate domestic producers and consumers from external price fluctuations. In order to study the effect of these policies on the elasticity of export demand, we (a) examine the formulation of the elasticity of export demand and the implication of price insulation policies, (b) review the trade policies of major importers and competing exporters, and (c) calculate the export demand elasticities for major agricultural commodities which incorporate price insulation policies. These export demand elasticities are much smaller than those of Johnson and

The expiration of agricultural commodity legislation in 1985 has resulted in debate on a new A¢Â€Âœfarm bill,A¢Â€Â providing the opportunity for evaluation of government activity in this industry.

Why is agriculture regulated in the way that it is, and what sustains that regulation? Gardner and Paarlberg respond by reviewing frameworks for explaining political choice in agriculture. These frameworks are simplifications, so there are limits on what can be explained. Either real life offers apparent contradictions to the models or some parameters cannot be well quantified. For example, Paarlberg uses the Anderson and Hayami thesis to explain much about protection in U.S. agriculture but concludes that the existence of acreage reduction programs (ARPs) is not adequately explained. Gardner follows the maximization of a political preference function (PPF) whose arguments are the gains of interest groups. The weights on the gains of each group are viewed as not well explained by researchers. Most of this work is considered ad hoc and does not explain causality. At the outset of a discussion of political choice modeling, it seems reasonable to ask, "Who Cares?" An obvious response is that if you advocate policy, you care because such information may help further your cause. If you are not an advocate but an economic analyst interested in the effects of policy instruments, then the political decision process might seem to be largely irrelevant and any interest purely academic. There are, however, some reasons for caring. Such knowledge may aid problem definition for policy analysis by (a) eliminating infeasible policy options, (b) establishing different evaluation criteria, and (c) helping the researcher know whether an economically strange policy choice resulted from political weights or economic misinformation. A recent example is ethanol. Political support now seems to be growing despite numerous pessimistic analyses by economists. Is this testimony to the lobbying effectiveness of ethanol interests, or have the economic analyses omitted some impacts? Both papers present the ultimate political decision as a function of interest groups and their gains. What strikes me is the difficulty in observing a political decision, identifying the gainer, and consequently ascribing a high PPF weight to that interest group. Sometimes this is done pretty casually in economics, usually by dividing the world into consumer surplus, producer surplus, and taxpayer cost. Then, by revealed preference, it is argued that the political weights on producer surplus and taxpayer cost exceed that on consumer surplus. Some economists see a more complex picture. Rausser and Foster recently examined the framework that distinguishes between policies that transfer economic surplus (PESTS) and those that increase economic surplus (PERTS). The theory demonstrates that the effects of these policies are interdependent and therefore the policy choices may also be interdependent. To understand policy choices, you may need to look at a package of policies and the net gain accruing to the various groups. Advocacy stands out as a difference between the papers. Paarlberg uses his paper to focus on acreage reduction programs, which are characterized as uniquely American and apparently irrational. Gardner, in offering a clear survey of political choice research results and where they fit in the PPF optimization model, does not zero in on the choice of a current policy instrument. In fact, he steers clear of advocacy in his section, "Positive and Normative." Gardner sees beneficial and