Experiments in ranching: Rain-index insurance and investment in production and drought risk management

Rainfall is critical for financial viability in ranching, yet droughts are becoming more common. The USDA Pasture, Rangeland, and Forage rain-index insurance program seek to reduce drought-related financial risks. Using the DRIR-R model, we test the investment impact of rainfall-index insurance with two randomized control simulations, one with a general population and one with professional ranchers. We find no evidence of direct impacts of rainfall-index insurance on herd size or drought adaptation investments. These findings support the idea that the rain-index insurance policy limits moral hazard in a way that reduces the likelihood of overgrazing that could intensify drought stress.

Automated summary

Rain-index insurance is critical for financial viability in ranching, reducing drought-related financial risks and limiting overgrazing that could intensify drought stress.