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Subsidy Policies and Insurance Demand

Author

Listed:
  • Jing Cai
  • Alain de Janvry
  • Elisabeth Sadoulet

Abstract

Using data from a two-year pricing experiment, we study the impact of subsidy policies on weather insurance take-up. Results show that subsidies increase future insurance take-up through their influence on payout experiences. Exploring mechanisms of the payout effect, we find that for households that randomly benefited from financial education, receiving a payout provides a one-time learning experience that improves take-up permanently. In contrast, households with poor insurance knowledge continuously update take-up decisions based on recent experiences with disasters and payouts. Combining subsidy policies with financial education can thus be effective in promoting long-run insurance adoption.

Suggested Citation

  • Jing Cai & Alain de Janvry & Elisabeth Sadoulet, 2020. "Subsidy Policies and Insurance Demand," American Economic Review, American Economic Association, vol. 110(8), pages 2422-2453, August.
    • Handle: RePEc:aea:aecrev:v:110:y:2020:i:8:p:2422-53
    DOI: 10.1257/aer.20190661
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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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