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Subsidy Policies and Insurance Demand

  • Jing Cai
  • Alain de Janvry
  • Elisabeth Sadoulet
American Economic Review
vol. 110, no. 8, August 2020
(pp. 2422-53)
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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.

Citation

Cai, Jing, Alain de Janvry, and Elisabeth Sadoulet. 2020. "Subsidy Policies and Insurance Demand." American Economic Review, 110 (8): 2422-53. DOI: 10.1257/aer.20190661

Additional Materials

JEL Classification

  • G22 Insurance; Insurance Companies; Actuarial Studies
  • G52 Household Finance: Insurance
  • G53 Household Finance: Financial Literacy
  • Q54 Climate; Natural Disasters and Their Management; Global Warming