Negative externalities of crop insurance subsidies: acase study in Italy

This study evaluates the impacts of risk management policies on the environment. The effects of public risk management programmes, such as subsidised crop insurance on optimal nitrogen fertilizer use and land allocation to crops, were examined empirically by developing a mathematical programming model of a representative wheat-tomato farm in Puglia, a region in southern Italy. The results show that with current crop insurance programmes, for tomato the optimal nitrogen fertilizer rate slighty increases and the optimal acreage substantially increases, whereas for wheat they both decrease. Hence, this type of public intervention could lead to an increase in surface and groundwater pollution by nitrates.