Research
Basis risk in the pasture, rangeland, and forage insurance program: Evidence from California
w/ Tina Saitone
Agricultural producers who are reliant upon rangelands and pasturelands are some of the most vulnerable to weather-related risk given their dependence on climate-sensitive resources. Index-based insurance products, like the Pasture, Rangeland, and Forage Insurance Program, are considered to be an adaptation strategy for mitigating climatic risks. Given that indices are imperfect predictors of losses, residual (basis) risk persists. This study quantifies basis risk and assesses insurance contract quality for nearly 63 million acres of rangelands in California. Basis risk can be summarized by considering false negative probabilities—the probability that an insured producer suffers a loss without receiving an indemnity payment. On California rangelands the false negative probabilities associated with one (both) of insured time intervals failing to indemnify a loss are 31% to 46% (14%–25%). When indemnities were paid, in 36% of the cases the payments are not sufficient to compensate for forage-related losses; the average shortfall in indemnity-related compensation ranged from $1.74/acre to $2.73/acre depending upon the location and underlying value of forage.
Recommended citation: Keeler, J. B., & Saitone, T. L. (2022). “Basis risk in the pasture, rangeland, and forage insurance program: Evidence from California.” American Journal of Agricultural Economics . 104, no. 4 (2022): 1203-1223.
Tractor Troubles: Right to Repair in Durable Goods Duopolies
Does strategic competition among durable good manufacturers deter repair restrictions? Manufacturers contend that competitive equipment markets preclude any incentive to limit consumer or third-party repairs, while the right-to-repair movement argues otherwise. To address this question, I develop a theoretical framework in which differentiated Bertrand durable good duopolists simultaneously choose equipment prices, repair prices, and the degree to which they restrict consumer self-repair. Modeling repair restrictions as an endogenous strategic variable — rather than an exogenous product characteristic, I show that even absent the switching costs and information frictions emphasized in prior aftermarket literature, profit-maximizing manufacturers may have a clear incentive to restrict repairs. Both numerical and analytical results demonstrate that Nash equilibria exist in which at least one manufacturer restricts consumer DIY repairs, with optimal repair restrictions and repair prices moving in tandem. The incentive to restrict repairs increases with the degree of vertical differentiation between manufacturers and decreases with the consumer discount rate, implying that right-to-repair policy impacts will vary substantially across industries. These findings offer a theoretical rationale for why sector-specific legislation, targeting agricultural equipment or automobiles, for instance, has advanced more readily than broad right-to-repair mandates, and lay groundwork for future structural and empirical analysis of repair market competition.
Estimating the Demand for Used Tractors: Do Farmers Prefer Older Tractors?
Anecdotal accounts suggest that farmers are turning to older, pre-software-era tractors as a workaround for repair restrictions on newer equipment. To examine whether this preference is real and what drives it, I estimate a random coefficients discrete choice demand model (BLP) using over 97,000 used tractor auction listings. Defining products by brand, horsepower, and era, I estimate farmer preferences for tractor characteristics and price sensitivities as functions of farm income and exposure to repair cost shocks. I find that while older 1970–1999 era tractors command higher market shares, farmers on average prefer newer, higher-horsepower John Deere tractors when controlling for price — suggesting that observed old-tractor market shares reflect price differences rather than an underlying taste for repairability. However, higher-income farmers show a significantly greater willingness to pay for older era tractors than their lower-income counterparts, consistent with older tractors serving a secondary or discretionary equipment role on larger operations. Exposure to repair cost shocks has no statistically significant effect on preferences for older tractors, though this null result may partly reflect limitations of the quinquennial Census data used to construct the shock measure. Own-price elasticity estimates from the preferred LRR market definition are consistent with prior literature, and cross-price elasticities reveal greater substitution toward John Deere across most categories. I discuss how market definition sensitivity and the omission of engine hours and new tractors constrain current counterfactual applications, and outline refinements needed to evaluate right-to-repair policy impacts directly.
Pasture, Rangeland, and Forage Index Insurance: Premium Subsidies and Contract Quality
w/ Steven Boucher, Michael Carter, and Tina Saitone
The Pasture, Rangeland, and Forage Rainfall Index Insurance program (PRF-RI), administered by the USDA Risk Management Agency, provides rainfall-based index insurance to ranchers seeking protection against forage yield losses. While the program has grown substantially to cover over 317 million acres and $7 billion in total liabilities by 2025, its value as a risk management tool depends critically on both the degree of basis risk and the interval selection strategies employed by ranchers. This paper evaluates PRF-RI contract quality for California ranchers using the Relative Insurance Benefit (RIB) metric, a welfare-based measure that benchmarks the program against a hypothetical perfect yield insurance contract. Drawing on long time-series forage yield data from three California field stations (Hopland, Sierra Foothills, and San Joaquin Experimental Range), combined with historical PRF rainfall index values and a bioeconomic model of a prototypical 300-head brood cow operation, we simulate net income under no insurance, PRF-RI, and perfect yield insurance scenarios across more than 21,000 feasible interval and weight combinations. We decompose contract quality into its risk mitigation and investment return components, showing how the program’s substantial premium subsidies (51–59%) create incentives for some ranchers to select drier off-season intervals to maximize subsidy-driven returns rather than to hedge forage production risk. Empirical analysis of actual rancher interval choices in our study counties reveals a bimodal distribution of insured acreage by interval, consistent with the presence of two distinct strategies: risk management and profit maximization. Our results suggest that current subsidy structures may undermine the program’s risk management objectives for a meaningful share of California ranchers.
Dynamic Crop Rotation with Field-Level Heterogeneity: Estimating Yields and Profits
w/ Mark Agerton and Matthieu Stigler
Crop rotation shapes agricultural productivity and environmental outcomes, yet estimating its effects is complicated by the fact that farmers select crops based on unobserved field-level productivity. This selection creates endogeneity in observed yields and means that marginal fields responding to policy incentives are systematically different from average fields. We develop and estimate a dynamic structural model of crop rotation that jointly identifies three distinct policy-relevant margins: how many fields switch crops, how productive switchers are relative to non-switchers, and how yields change when fields switch. Using satellite-derived, field-level data on crop choices and yields for approximately one million fields in Illinois, Iowa, and Indiana over 2005–2019, we estimate yield equations with field fixed effects alongside a dynamic discrete choice model of profit-maximizing farmers. We derive and empirically verify conditions under which selection on comparative advantage also implies selection on absolute advantage, a result with direct implications for predicting supply responses to rotation subsidies and conservation programs. Our estimates reveal economically significant rotation yield effects, substantial heterogeneity in field productivity, and a large share of fields that maintain strict corn-soy rotations regardless of price signals. The structural framework enables coherent counterfactual policy analysis that reduced-form or aggregate approaches cannot support.