IDEAS home Printed from https://ideas.repec.org/p/cdl/agrebk/qt5cc1b1fk.html

Subsidy Policies and Insurance Demand

Author

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

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

  • Cai, Jing & de Janvry, Alain & Sadoulet, Elisabeth, 2020. "Subsidy Policies and Insurance Demand," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt5cc1b1fk, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt5cc1b1fk
    as

    Download full text from publisher

    File URL: https://www.escholarship.org/uc/item/5cc1b1fk.pdf;origin=repeccitec
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Abhijit Banerjee & Amy Finkelstein & Rema Hanna & Benjamin A. Olken & Arianna Ornaghi & Sudarno Sumarto, 2019. "The Challenges of Universal Health Insurance in Developing Countries: Evidence from a Large-scale Randomized Experiment in Indonesia," NBER Working Papers 26204, National Bureau of Economic Research, Inc.
    2. Fischer, Greg & Karlan, Dean & McConnell, Margaret & Raffler, Pia, 2019. "Short-term subsidies and seller type: A health products experiment in Uganda," Journal of Development Economics, Elsevier, vol. 137(C), pages 110-124.
    3. Cai, Jing & Song, Changcheng, 2017. "Do disaster experience and knowledge affect insurance take-up decisions?," Journal of Development Economics, Elsevier, vol. 124(C), pages 83-94.
    4. Markku Kaustia & Samuli Knüpfer, 2008. "Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions," Journal of Finance, American Finance Association, vol. 63(6), pages 2679-2702, December.
    5. Nava Ashraf & James Berry & Jesse M. Shapiro, 2010. "Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia," American Economic Review, American Economic Association, vol. 100(5), pages 2383-2413, December.
    6. Justin Gallagher, 2014. "Learning about an Infrequent Event: Evidence from Flood Insurance Take-Up in the United States," American Economic Journal: Applied Economics, American Economic Association, vol. 6(3), pages 206-233, July.
    7. Jing Cai & Changcheng Song, 2016. "Do Disaster Experience and Knowledge Affect Insurance Take-up Decisions?," NBER Working Papers 22403, National Bureau of Economic Research, Inc.
    8. Shawn Cole & Daniel Stein & Jeremy Tobacman, 2014. "Dynamics of Demand for Index Insurance: Evidence from a Long-Run Field Experiment," American Economic Review, American Economic Association, vol. 104(5), pages 284-290, May.
    9. Amy Finkelstein & Nathaniel Hendren & Erzo F. P. Luttmer, 2019. "The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2836-2874.
    10. Lorenzo Casaburi & Jack Willis, 2018. "Time versus State in Insurance: Experimental Evidence from Contract Farming in Kenya," American Economic Review, American Economic Association, vol. 108(12), pages 3778-3813, December.
    11. Pascaline Dupas, 2014. "Short‐Run Subsidies and Long‐Run Adoption of New Health Products: Evidence From a Field Experiment," Econometrica, Econometric Society, vol. 82(1), pages 197-228, January.
    12. Ruth Vargas Hill & Miguel Robles & Francisco Ceballos, 2016. "Demand for a Simple Weather Insurance Product in India: Theory and Evidence," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 98(4), pages 1250-1270.
    13. Michael P. Haselhuhn & Devin G. Pope & Maurice E. Schweitzer & Peter Fishman, 2012. "The Impact of Personal Experience on Behavior: Evidence from Video-Rental Fines," Management Science, INFORMS, vol. 58(1), pages 52-61, January.
    14. Jing Cai & Alain De Janvry & Elisabeth Sadoulet, 2015. "Social Networks and the Decision to Insure," American Economic Journal: Applied Economics, American Economic Association, vol. 7(2), pages 81-108, April.
    15. Shawn Cole & Xavier Gine & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2013. "Barriers to Household Risk Management: Evidence from India," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 104-135, January.
    16. Xavier Giné & Robert Townsend & James Vickery, 2008. "Patterns of Rainfall Insurance Participation in Rural India," The World Bank Economic Review, World Bank, vol. 22(3), pages 539-566, October.
    17. Casaburi, Lorenzo & ,, 2018. "Time vs. State in Insurance: Experimental Evidence from Contract Farming in Kenya," CEPR Discussion Papers 12896, C.E.P.R. Discussion Papers.
    18. Ulrike Malmendier & Stefan Nagel, 2011. "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 373-416.
    19. Stein, Daniel, 2014. "Dynamics of demand for rainfall index insurance : evidence from a commercial product in India," Policy Research Working Paper Series 7035, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Takahashi, Kazushi & Noritomo, Yuma & Ikegami, Munenobu & Jensen, Nathaniel D., 2020. "Understanding pastoralists’ dynamic insurance uptake decisions: Evidence from four-year panel data in Ethiopia," Food Policy, Elsevier, vol. 95(C).
    2. Ella Kirchner & Oliver Musshoff, 2024. "Digital opportunities for the distribution of index‐based microinsurance: Evidence from a discrete choice experiment in Mali," Journal of Agricultural Economics, Wiley Blackwell, vol. 75(2), pages 794-815, June.
    3. Mogge, Lukas, 2023. "A District-Level Analysis of the Effect of Risk Exposure on the Demand for Index Insurance in Mongolia," Ruhr Economic Papers 1018, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    4. Feier Yan & Fujin Yi & Huang Chen, 2024. "Effect of education on crop insurance knowledge: evidence from a RCT in China," China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 17(1), pages 1-21, September.
    5. Ayako Matsuda & Takashi Kurosaki, 2017. "Temperature and Rainfall Index Insurance in India," OSIPP Discussion Paper 17E002, Osaka School of International Public Policy, Osaka University.
    6. Stoeffler, Quentin & Opuz, Gülce, 2022. "Price, information and product quality: Explaining index insurance demand in Burkina Faso," Food Policy, Elsevier, vol. 108(C).
    7. Sarah Janzen & Nicholas Magnan & Conner Mullally & Soye Shin & I. Bailey Palmer & Judith Oduol & Karl Hughes, 2021. "Can Experiential Games and Improved Risk Coverage Raise Demand for Index Insurance? Evidence from Kenya," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 338-361, January.
    8. Kramer, Berber & Porter, Maria & Wassie, Solomon Bizuayehu, 2025. "Basis Risk, Social Comparison, Perceptions of Fairness and Demand for Insurance: A Field Experiment in Ethiopia," 2025 AAEA & WAEA Joint Annual Meeting, July 27-29, 2025, Denver, CO 361093, Agricultural and Applied Economics Association.
    9. Anita Mukherjee & Shawn Cole & Jeremy Tobacman, 2021. "Targeting weather insurance markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 88(3), pages 757-784, September.
    10. Aurélien Baillon & Aleli Kraft & Owen O’Donnell & Kim Wilgenburg, 2022. "A behavioral decomposition of willingness to pay for health insurance," Journal of Risk and Uncertainty, Springer, vol. 64(1), pages 43-87, February.
    11. Williams Ali & Awudu Abdulai & Ashok K. Mishra, 2020. "Recent Advances in the Analyses of Demand for Agricultural Insurance in Developing and Emerging Countries," Annual Review of Resource Economics, Annual Reviews, vol. 12(1), pages 411-430, October.
    12. Cai, Jing & Song, Changcheng, 2017. "Do disaster experience and knowledge affect insurance take-up decisions?," Journal of Development Economics, Elsevier, vol. 124(C), pages 83-94.
    13. Glenn W. Harrison & Jia Min Ng, 2019. "Behavioral insurance and economic theory: A literature review," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 133-182, July.
    14. Moritz, Laura & Kuhn, Lena & Bobojonov, Ihtiyor, 2023. "The role of peer imitation in agricultural index insurance adoption: Findings from lab‐in‐the‐field experiments in Kyrgyzstan," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 27(3), pages 1649-1672.
    15. Mogge, Lukas & Kraehnert, Kati, 2025. "Perception and protection: The effect of risk exposure on demand for index insurance in Mongolia," Journal of Environmental Economics and Management, Elsevier, vol. 130(C).
    16. Longhao Xu & Xinyu Zhao & Fenghua Wen, 2025. "Clan culture and private insurance take-up," Empirical Economics, Springer, vol. 68(6), pages 2729-2765, June.
    17. Cai, Jing & Song, Changcheng, 2013. "Do Hypothetical Experiences Affect Real Financial Decisions? Evidence from Insurance Take-up," MPRA Paper 46862, University Library of Munich, Germany.
    18. Shukri Ahmed & Craig McIntosh & Alexandros Sarris, 2020. "The Impact of Commercial Rainfall Index Insurance: Experimental Evidence from Ethiopia," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(4), pages 1154-1176, August.
    19. Castaing, Pauline & Gazeaud, Jules, 2025. "Do index insurance programs live up to their promises? Aggregating evidence from multiple experiments," Journal of Development Economics, Elsevier, vol. 175(C).
    20. Dougherty, John P. & Flatnes, Jon Einar & Gallenstein, Richard A. & Miranda, Mario J. & Sam, Abdoul G., 2020. "Climate change and index insurance demand: Evidence from a framed field experiment in Tanzania," Journal of Economic Behavior & Organization, Elsevier, vol. 175(C), pages 155-184.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cdl:agrebk:qt5cc1b1fk. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lisa Schiff (email available below). General contact details of provider: https://edirc.repec.org/data/dabrkus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.