Vincent Smith (Montana State University) The US Federal Crop Insurance Program: A Case Study in Rent Seeking

Organised by Section Economics

Tue 21 January 2020 12:30 to 13:30

Venue Leeuwenborch, gebouwnummer 201
Room C82
Rent seeking is endemic to the process through which most policy and regulatory initiatives are developed in the USA and most other countries. The purpose of this seminar is to show how farm and other interest groups have formed coalitions to benefit themselves at the expense of the federal government by examining the legislative history of the federal crop insurance program. The federal crop insurance legislation and the way in which the USDA Risk Management Agency manages federal crop insurance program are replete with complex and subtle policy initiatives. Using a new theoretical framework, the study examines how, since 1980, three major legislative initiatives – the 1980 Federal Crop Insurance Act, the 1994 Crop Insurance Reform Act and the 2000 Agricultural Risk Protection Act – were designed to jointly benefit farm interest groups and the agricultural insurance industry, largely through increases in government subsidies. Each of the three legislative initiatives includes some provisions that, when examined in isolation, benefitted farmers and adversely affected the insurance industry, and vice versa. However, the joint effects of the multiple adjustments included in each of those legislative initiatives generated net benefits for both sets of interest groups. The evidence, therefore, indicates that coalitions formed between the farm and insurance lobbies to obtain policy changes that, when aggregated, benefited both groups, as well as banks with agricultural lending portfolios. However, those benefits came at an increasingly substantial cost to taxpayers through federal government subsidies.
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