Agricultural Insurance Association with Farm Technology and Technical Efficiency

This paper addresses divergent interpretations of agricultural insurance's association with on-farm production variability by conducting an exhaustive analysis of the U.S. Federal Crop Insurance Program and its effect on farm technology levels and efficiency. We utilize a meta-stochastic frontier approach and employ nearest-neighbor matching of insured and uninsured farms to minimize the self-selection issue in insurance participation. Analyzing 106,551 farm-level observations from the Agricultural Resource Management Survey spanning 2001–2023, we find that insured farms exhibit an 8.50% higher technology level and a 6.36% greater efficiency in resource usage compared to uninsured farms. This technology level gap associated with insurance is weakly linked to its ability to strengthen producers' financial positions, making them more reliable candidates for credit and potentially promoting the use of technologies that yield relatively higher output. Additionally, significant variations in the benefits of insurance across different farm types and operator demographics are documented, underscoring the necessity for agricultural policy to be responsive to the heterogeneous needs of the farming community to optimize the impact of insurance programs.