Are Farmers’ Behaviors Rational When They Pay Less for Social Endowment Insurance? Evidence from Chinese Rural Survey Data

Zhonghai Liu, Kuangqi Li, Ning Zhang, Lianyou Li and Yi Fan

Emerging Markets Finance and Trade, 2018, vol. 54, issue 13, 2995-3012

Abstract: In recent years, farmers have had high participation rate in the rural social endowment insurance in China, for which personal contribution and government subsidy are the main funding source. There have been increasingly more farmers participating into the program. However, their enthusiasm for high premium payment was rather low as most of them selected the minimum premium for insurance. In this article, the discounted utility theory from behavioral economics was adopted to analyze insurance selection behaviors of farmers; in addition, a discounted incremental utility model with a hyperbolic discounting function was also further constructed to describe their insurance decision-making processes. Based on the investigation of time preferences of farmers, their insurance participation behaviors of diverse natures were simulated. The corresponding results indicated that active insurance participation and low insurance premium payment were rational choices for most farmers; in comparison, for the elders with higher income, different choices can be made. Therefore, policy makers could formulate differentiated subsidy policies directing at farmers from different groups, so as to stimulate their enthusiasm for premium payment.

Date: 2018
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DOI: 10.1080/1540496X.2017.1382347

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