1. Implications of the Federal Crop Insurance Program on Water Sustainability in the United States
Prasenjit Ghosh, Ruiqing Miao, and Emir Malikov
(Auburn University)
Prepared for the 2019 ASSA Annual Meeting, Atlanta, GA
January 5, 2019

2. Govt. outlay $7.7 billion annually
Motivation
Crop insurance program covers more than 80% of cropland and about 130 crops
Govt. outlay $7.7 billion annually
Agriculture is the largest user of water (70% of fresh withdrawals within the U.S.)
How will crop insurance affect irrigation water use?

3. Background Information
Insured Acreage and Premium Subsidy Rate in the United States ( )
Insured Acreage (million acres)
Premium Subsidy Rate (%)
Insured Acreage
Premium Subsidy Rate
Year

4. Background Information (Contd.)
Water Withdrawals (Mgal/day)

5. Potential channels through which crop insurance affect water use
Intuition
Potential channels through which crop insurance affect water use
Land use impacts of crop insurance
Moral Hazard leads to “normal” amount of irrigation to receive indemnity payment
May not be sufficient in extreme events
Push farmers to irrigate when crop has failed
Net impact of crop insurance on irrigation withdrawals is not clear

6. Literature Review Deryugina and Konar (2017):
Overlooked the impacts of climate variation and water rights
Regional analysis of one crop
Time period:
May suffer from omitted variable bias

7. Our Contribution Comprehensive analysis Entire contiguous U.S.
Expanded time frame:
Incorporate climate variation and water rights information

8. Empirical Approach Poisson Fixed Effects Regression via GMM
Nonlinear panel-data model
Wooldridge quasi-differencing transformation
Moment condition

9. Identification Strategy
Instrumental Variables (IVs):
Subsidy rate at 75 % coverage level
First order lag of monthly maximum temperature
First order lag of monthly precipitation

10. Data USGS National Water Information System
Total fresh water use (Mgal/day)
Fresh groundwater use (Mgal/day)
Fresh Surface water use (Mgal/day)
RMA’s Summary of Business Reports
Subsidy amount ($)
Liability amount ($)
Insured Acres
Ag-Analytics: Cornell University
Monthly maximum temperature (Celsius)
Monthly average precipitation (Millimeters)
Water Rights Institutions

11. Results Table 1. Poisson Fixed Effects Regression Estimates via GMM
Total Water
Groundwater
Surface Water
Variables
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Subsidy Amount
-0.079***
-0.091***
-0.068***
-0.008
-0.166***
-0.125***
-0.128***
-0.100*
(0.015)
(0.021)
(0.017)
(0.024)
(0.073)
(0.033)
(0.028)
(0.030)
(0.054)
Temperature
Yes
Precipitation
Water Rights No
Year Fixed Effects
FIPS
2,602
Obs.
12,641
Note: Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1. We use subsidy rate at 75% coverage level, first order lag of average maximum temperature of the growing season, first order lag of average precipitation of the growing season as IVs.

12. Results (Contd.)
Table 2. Poisson Fixed Effects Regression Estimates via GMM
Total Water
Groundwater
Surface Water
Variables
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Subsidy Amount
-0.071***
-0.154***
-0.103***
(0.016)
(0.027)
0.038)
Liability Amount
-0.141**
-0.123***
-0.058
(0.066)
(0.034)
(0.040)
Insured Acreage
-0.047***
-0.038
-0.011
(0.009)
(0.042)
(0.242)
Temperature
Yes
Precipitation
Water Rights
Tim Trend No
Year Fixed Effects
FIPS
2,602
Obs.
12,641
12641
Note: Robust standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.1. We use subsidy rate at 75% coverage level, first order lag of average maximum temperature of the growing season, first order lag of average precipitation of the growing season as IVs.

13. Conclusions
Holding everything else fixed, one dollar increase in subsidy amount in a county, on average, leads to decreases of
1.68 gallon/day of fresh water withdrawals
1.87 gallon/day of groundwater withdrawals, and
1.34 gallon/day of surface water withdrawals for irrigation
Results are robust to various specifications of explanatory variables
Provides empirical evidence that federal crop insurance programs encourage water sustainability

14. Acknowledgement Partially Sponsored by:
Alabama Agricultural Experiment Station
Hatch program of the National Institute of Food and Agriculture, U.S. Department of Agriculture

15. Questions? Thank You!

16. Descriptive Statistics (N=12,935)