TY  - JOUR
AU  - Cai, Jing
AU  - de Janvry, Alain
AU  - Sadoulet, Elisabeth
TI  - Subsidy Policies and Insurance Demand
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 22702
PY  - 2016
Y2  - September 2016
DO  - 10.3386/w22702
UR  - http://www.nber.org/papers/w22702
L1  - http://www.nber.org/papers/w22702.pdf
N1  - Author contact info:
Jing Cai
Department of Agricultural & Resource Economics
University of Maryland
2122 Symons Hall
College Park, MD 20742
E-Mail: cai516@umd.edu

Alain de Janvry
University of California at Berkeley
207 Giannini Hall
Berkeley, CA 94720
E-Mail: alain@berkeley.edu

Elisabeth Sadoulet
University of California at Berkeley
207 Giannini Hall
Berkeley, CA 94720
E-Mail: esadoulet@berkeley.edu
AB  - 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.
ER  -