Risk effects of GM corn: Evidence from crop insurance outcomes and high-dimensional methods

Abstract

This study evaluates whether genetically modified (GM) corn hybrids with rootworm resistant traits (GM-RW) have lower yield risk. A crop insurance actuarial performance measure, the loss cost ratio (LCR), is used to represent yield risk. High-dimensional methods are utilized in this study to maintain parsimony in the empirical specification, and facilitate estimation. Specifically, we employ the Cluster-Lasso (cluster-least absolute shrinkage and selection operator) procedure. This method produces uniformly valid inference on the main variable of interest (i.e., the GM-RW variable) in a high-dimensional panel data setting even in the presence of heteroskedastic, non-Gaussian, and clustered error structures. After controlling for a large set of potential weather confounders using Cluster-Lasso, we find consistent evidence that GM corn hybrids with rootworm resistant traits have lower yield risk.