How do premium subsidies affect crop insurance demand at different coverage levels: the case of corn

This study explores the relationship between the demand for federal corn insurance and premium subsidies at each coverage level using county-level data. The study shows that the elasticities of demand with respect to per U.S. dollar net premium vary across insurance plans, coverage levels, and regions. The results indicate that corn producers in riskier regions are more sensitive to premium changes for crop insurance. However, the heterogeneity of demand was overlooked in the majority of existing insurance demand studies, which could result in biased conclusions. In addition, this study estimates the changes in producers’ corn insurance purchases if premium subsidy rates were to be reduced by 10 percentage points. The expected change in corn revenue insurance demand at the 75% coverage level in the Southern Plains (− 12.182%) would be three times greater than it is at the 80% coverage level in the Corn Belt (− 4.167%) with a 10 percentage point reduction in premium subsidy rates, similar to the corn yield insurance demand.