Risk Management by Colorado dryland wheat farmers and the elimination of the disaster assistance program

The impacts of eliminating the Disaster Assistance Program and modifying the provisions of federal all-risk crop insurance are evaluated for a sample of eastern Colorado dryland wheat farmers. A stochastic simulation model and stochastic dominance techniques are used to identify changes in risk management strategies and to obtain approximate measures of welfare changes. The results indicate that all ten sample farmers were made worse off by this policy change, despite substantial subsidies in crop insurance premiums. Welfare losses were sizable, relative to expected net returns, and acreage covered by federal crop insurance did not increase appreciably.