PT  - JOURNAL ARTICLE
AU  - Miao, Ruiqing
AU  - Hennessy, David A.
AU  - Feng, Hongli
TI  - Sodbusting, Crop Insurance, and Sunk Conversion Costs
AID  - 10.3368/le.90.4.601
DP  - 2014 Nov 01
TA  - Land Economics
PG  - 601--622
VI  - 90
IP  - 4
4099  - http://le.uwpress.org/content/90/4/601.short
4100  - http://le.uwpress.org/content/90/4/601.full
SO  - Land Econ2014 Nov 01; 90
AB  - We build a real option model that articulates sodbusting incentives arising from risk interventions in the presence of conversion costs. The model shows that risk interventions reduce expected costs of switching land use between cropping and noncropping activities and, hence, incentivize sodbusting. Based on data for south-central North Dakota over 1989–2012, our simulations show that offsetting 20% of a cropping-return shortfall by a risk intervention increases the sodbusting cost threshold, below which sodbusting will occur, by 41% (or $43.7/acre). Omitting cropping-return risk across time underestimates the sodbusting cost threshold by 23% (or $24.35/acre) and hence underestimates sodbusting caused by crop production. (JEL Q18, Q38)