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Efficiency Impacts of Utilizing Soil Data in the Pricing of the Federal Crop Insurance Program

Child planting a young plant in the soil

Since the Agricultural Act of 2014, the federal crop insurance program (FCIP) has been the cornerstone agricultural policy in the United States, and is the largest such program globally, with about $100 billion in coverage annually. Given its scale and scope, the FCIP has the potential to have pervasive impacts on incentives and policy functioning if not designed and priced properly. Surprisingly, soil data are not considered by the government when establishing insurance guarantees or rates. Using soil data that could easily and feasibly be scaled nationally, we find that the pricing differentials caused by the government's failure to handle soil information leads to large errors in rating.