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This thesis has two research chapters regarding the government provided Rainfall Index Insurance for Pasture, Rangeland, and Forage (RI-PRF). In the first chapter, we empirically examined whether charity hazard exists between Rainfall Index Insurance (RI-PRF) and government mandated Livestock Forage Program by estimating the demand for RI-PRF. Evidence was found that lagged LFP payments significantly increase the marginal effects of participating in RI-PRF in three of the five states and in the combined model. These results support the opposite of charity hazard where LFP payments improve the probability of purchasing RI-PRF. In our other models, the results provide evidence in support and against charity hazard in RI-PRF participation. As a result, we cannot definitively accept or reject our hypothesis that charity hazard exists in RI-PRF participation.
In the second chapter, we examined the relation between RI-PRF insurance interval selection and financial outcomes from forage production for two locations in the Sandhills of Nebraska. We find that the risk reducing effectiveness of the monthly insurance interval depends upon expected precipitation. Our results indicate that insurance scenarios containing monthly intervals with high expected precipitation (during the growing season) reduced producer risk. Whereas insurance scenarios containing monthly intervals with low expected precipitation (non-growing season) did not result in reducing producer risk. In addition, insurance intervals with low expected precipitation offered the highest net returns to insurance participation at one location, had higher premiums and therefore, higher government cost through additional subsidy dollars per acre.
Advisors: Kathleen Brooks and Cory Walters