The effect of crop insurance on agricultural loan delinquencies

Abstract

This study addresses how participation in the Federal crop insurance program influences agricultural loan delinquencies. To achieve this objective, we use 1994–2015 county‐level panel data for corn production in the Midwestern United States (US). Traditional linear fixed effect (FE) models, instrumental variable‐based FE estimation, and several robustness checks are used in the empirical analysis. Estimation results suggest that counties with higher levels of crop insurance participation tend to have statistically lower rates of agricultural loan delinquency. This is evidence that the US crop insurance program helps reduce financial stress and facilitates the continued viability of the agricultural credit system.