Economic Evaluation of Bt Corn Refuge Insurance

Paul D. Mitchell, Terrance M. Hurley, Richard L. Hellmich
June 2000  [00-WP 243]

In order to prolong the efficacy of Bt, the Environmental Protection Agency has imposed mandatory refuge requirements for Bt crops. Growers, however, have no economic incentive to comply with requirements because, on average, refuge crops are riskier and less productive. The authors evaluate refuge insurance, meaning insurance that pays indemnities for yield losses on refuge due to insect damage, as a tool to increase grower compliance incentives. The authors evaluate the feasibility of private provision of refuge insurance and its impact on grower incentives to comply with refuge requirements. They conclude that, to provide significant compliance incentives, conventional insurance products must be restructured to draw premiums from sources other than grower risk premiums.

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