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Subsidy Policies and Insurance Demand

Jing Cai (), Alain de Janvry () and Elisabeth Sadoulet ()

No 22702, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D12 D83 G22 H20 O12 Q12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-ias and nep-tra
Date: 2016-09
Note: DEV
References: View references in EconPapers View complete reference list from CitEc
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