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The Impact of Insurance Provision on Household Production and Financial Decisions

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  • Jing Cai

Abstract

This paper uses a natural experiment to study the impact of an agricultural insurance program on household production, borrowing, and saving behavior. The empirical strategy includes difference-in-differences and triple difference estimations. The results show that insurance provision increases the insured crop production by 16 percent and raises borrowing by 29 percent. Interestingly, it does not affect total household savings; however, it does affect the relative proportion of flexible-term savings. Furthermore, effects on production and savings persist in the long run, while effects on borrowing are significant in only the medium run. Lastly, calibration results suggest that the policy is both welfare improving and cost-effective. (JEL D13, D14, G22, O16, P32, P36, Q12)

Suggested Citation

  • Jing Cai, 2016. "The Impact of Insurance Provision on Household Production and Financial Decisions," American Economic Journal: Economic Policy, American Economic Association, vol. 8(2), pages 44-88, May.
    • Handle: RePEc:aea:aejpol:v:8:y:2016:i:2:p:44-88
    Note: DOI: 10.1257/pol.20130371
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    More about this item

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P32 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Collectives; Communes; Agricultural Institutions
    • P36 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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