Protect or Prepare? Crop insurance and adaptation in a changing climate | Marguerite Obolensky

Marguerite Obolensky will be presenting her paper ‘Protect or Prepare? Crop Insurance and Adaptation in a Changing Climate.’ The paper can be accessed here. 

Abstract: As climate risks intensify, insurance subsidies play a growing role in protecting against weather-related losses, but they may also weaken incentives to adapt. This paper studies that trade-off in the context of U.S. crop insurance subsidies. I estimate a dynamic land-use model in which forward-looking farmers make planting, irrigation, and insurance decisions under alternative subsidy regimes. Under the status quo, premium-linked subsidies increase insurance coverage but also tilt planting and irrigation decisions toward riskier production alternatives, weakening adaptation incentives as climate conditions evolve. Targeting subsidies across regions reduces spatial distortions, while decoupling subsidy dollars from actuarial risk substantially reduces the remaining within-location incentives to favor higher-risk production alternatives.

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