CLIMATE CHANGE: THE FISCAL RISKS FACING THE FEDERAL GOVERNMENT
responses could actually increase yield risk in exchange for higher expected (mean) returns. The models assume that producers are risk-neutral and make decisions only to maximize expected profits.
Finally, the models do not consider changes in crop insurance subscription or coverage levels. Preliminary analysis suggests two potentially offsetting effects. On the one hand, an increase in risk may prompt farmers with crops that are not currently insured (roughly 15 percent of nationwide planted acreage of principal field crops in 2015) to purchase some level of coverage. This effect would increase total premiums and premium subsidies. On the other hand, increases in risk raise the actuarially fair price of insurance, which may induce farmers to purchase lower levels of coverage to reduce their total premium expenditure. This effect would reduce total premiums and premium subsidies.
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