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Subsidy Policies with Learning from Stochastic Experiences

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

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 prices. This has led gov- ernments and donors to provide subsidies to increase the take-up, with the hope of reducing the subsidies once the value of the product is better known. 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 product for rice producers. We estimate both reduced form causal channels and a structural model of learning from stochastic expe- rience which we use to conduct policy simulations. Results show that the optimum current subsidy necessary to achieve a desired level of take-up rate depends on both past subsidy levels and past payout rates, implying that subsidy levels should vary locally year-to-year.

Suggested Citation

  • Cai, Jing & de Janvry, Alain & Sadoulet, Elisabeth, 2016. "Subsidy Policies with Learning from Stochastic Experiences," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7568b09m, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt7568b09m
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    References listed on IDEAS

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    1. 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.
    2. 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.
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    Cited by:

    1. Andrew Royal, 2017. "Dynamics in risk taking with a low-probability hazard," Journal of Risk and Uncertainty, Springer, vol. 55(1), pages 41-69, August.
    2. Alain de JANVRY & Elisabeth SADOULET & Manzoor DAR & Kyle EMERICK, 2016. "The Agricultural Technology Adoption Puzzle: What Can We Learn From Field Experiments?," Working Papers P178, FERDI.

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