Sectoral analysis of the benefits of subsidized ( crop) insurance in Mexico.
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Using a sectorwide mathematical model that incorporates risk-averse behaviour, attempts to provide a quantification of the aggregate economic effects of Mexico's crop insurance programme. These effects are measured in terms of changes in social welfare, producer income, sector income, employment, output, prices, consumer surplus, distribution of agricultural income, and other variables. Finds that the social benefits of compulsory crop insurance in Mexico are negative, even before the cost of the subsidy is taken into account. This is because the economic gains from risk sharing are too small to offset the share of the administration costs paid by farmers. In fact, the insurance programme leads to a net leftward shift in the aggregate supply. This shift proves beneficial to producers in the short term because of price increases induced by generally inelastic demands. Interestingly, the insurance subsidy worsens the distribution of agricultural income, because the large scale farmers benefit most. Insurance leads to modest increases in aggregate employment. -from Editors