Budgetary and producer welfare effects of revenue insurance

The efficiency of redistribution of government-provided revenue insurance programs is compared with the efficiency of the 1990 farm program. The results indicate that revenue insurance would be more efficient because it would provide subsidies when and only when revenue is low and marginal utility is high, and it works on the component of the objective function (revenue) that is of greatest relevance to producers. Simulation results indicate that a revenue insurance scheme that guarantees 75% of expected revenue to risk-averse producers could provide approximately the same level of benefits as the 1990 program, at as little as one-fourth the cost.