Subsidy Policies and Insurance Demand

49 Pages Posted: 3 Oct 2016

See all articles by Jing Cai

Jing Cai

University of Michigan at Ann Arbor

Alain de Janvry

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy

Elisabeth Sadoulet

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy

Date Written: September 2016

Abstract

Many new products presumed to be privately beneficial to the poor have a high price elasticity of demand and ultimately zero take-up rate at market price. This has led governments and donors to provide subsidies to increase take-up, with the concern of trying to limit their cost. In this study, we use data from a two-year field experiment in rural China to define the optimum subsidy scheme that can insure a given take-up for a new weather insurance for rice producers. We build a model that includes the forces that are known to be determinants of insurance demand, provide reduced form confirmation of their importance, validate the dynamic model with out-of-sample predictions, and use it to conduct policy simulations. Results show that the optimum current subsidy necessary to achieve a desired take-up rate depends on both past subsidy levels and past payout rates, implying that subsidy levels should vary locally year-to-year.

Suggested Citation

Cai, Jing and de Janvry, Alain and Sadoulet, Elisabeth, Subsidy Policies and Insurance Demand (September 2016). NBER Working Paper No. w22702. Available at SSRN: https://ssrn.com/abstract=2846939

Jing Cai (Contact Author)

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

Alain De Janvry

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy ( email )

2607 Hearst Avenue
Berkeley, CA 94720-7320
United States

Elisabeth Sadoulet

University of California, Berkeley - The Richard & Rhoda Goldman School of Public Policy ( email )

2607 Hearst Avenue
Berkeley, CA 94720-7320
United States

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