Abstract

Crop insurance is one of the governments' favorite policies to cover agricultural risk, and has often been supported in various ways. The premium subsidy is one of the most common forms of supporting crop insurance. However, it is often not systematic and does not follow a certain purpose. In this study, with reference to theoretical and practical experience of crop insurance in Iran and the world, and the necessity of the orientation of these subsidies to support government policies, a model for the purposeful payment of the premium subsidies in support of import substitute products is designed and developed and applied. The model is evaluated by applying it to allocate subsidies to agricultural crops. In developing the model, it was assumed that, policymaker follows a social utility maximization in which the level of utility increases as the area coverage of insurance expands on the import substitute products. In this model, the subsidy budget constraint, and the constraint on farmers’ willingness to pay for a premium, which is reflected in their demand functions, is taken into account. The results show that optimal allocation of subsidies lead to a better redistribution of funds between different crops in different regions, in which there is more insurance coverage with the same budget.