Optimal Coverage Level and Producer Participation in Supplemental Coverage Option in Yield and Revenue Protection Crop Insurance

The 2014 Farm bill included a new supplementary coverage option (SCO) to provide additional protection against shallow losses not covered by the individual crop plans. SCO indemnification triggers off of county yields or revenues whereas individual plans trigger off of the individual farmers’ yields or revenue. In this paper we examine the impact of supplementary coverage option on the optimum producer coverage level. Our findings indicate that the individual plan with SCO provides better protection but is distortionary to the current choice of coverage level. The new optimal coverage level choice is likely to differ and vary in counties depending upon the counties’ respective yield variability