Determining Optimal Subsidy Levels for Agricultural Insurance Take-up in China

Last registered on November 28, 2016

Pre-Trial

Trial Information

General Information

Title
Determining Optimal Subsidy Levels for Agricultural Insurance Take-up in China
RCT ID
AEARCTR-0001796
Initial registration date
November 28, 2016

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
November 28, 2016, 10:42 PM EST

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Region

Primary Investigator

Affiliation
University of Michigan

Other Primary Investigator(s)

PI Affiliation
University of California, Berkeley
PI Affiliation
University of California, Berkeley

Additional Trial Information

Status
Completed
Start date
2010-01-01
End date
2014-12-31
Secondary IDs
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 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.
External Link(s)

Registration Citation

Citation
Cai, Jing, Alain de Janvry and Elisabeth Sadoulet. 2016. "Determining Optimal Subsidy Levels for Agricultural Insurance Take-up in China." AEA RCT Registry. November 28. https://doi.org/10.1257/rct.1796
Former Citation
Cai, Jing, Alain de Janvry and Elisabeth Sadoulet. 2016. "Determining Optimal Subsidy Levels for Agricultural Insurance Take-up in China." AEA RCT Registry. November 28. https://www.socialscienceregistry.org/trials/1796/history/12105
Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)
In the first year, we randomized subsidy policies at the village level by offering either a partial subsidy of 70% of the actuarially fair price or a full subsidy. The product was first offered with as 70% subsidy, and two days later 62 randomly selected villages were surprised with an announcement that the insurance will be offered for free to all, regardless of whether they had agreed to buy it or not at the initial price. These villages are called the "free sample," while the remaining 70% subsidy villages are called the "non-free sample."

In the second year, we randomly assigned eight prices to the product at the household level, with subsidies ranging from 40% to 90%. This creates eight different price treatment subgroups. Except for the price, everything else remained the same in the insurance contract as in the first year. Only two or three different prices were assigned within each village.

In both years, we offered information sessions about the insurance policy to farmers, in which we explain the insurance premium, the amount of government subsidy, the responsibility of the insurance company, the maximum payout, the period of coverage, the rules for loss verification, and the procedures for making payouts. Households made their insurance purchase decision immediately after the information session. In
the second-year information session, we also informed farmers of the list of people in the village who were insured and of the payouts made during the first year at both the household and village level.
Intervention Start Date
2010-01-01
Intervention End Date
2011-12-31

Primary Outcomes

Primary Outcomes (end points)
Insurance take-up
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
We construct a model of response to stochastic experiences in which individuals update their valuation of a weather insurance product with their recent experience. In our model, we specify three recognized channels through which recent experience can affect demand: (1) the effect of experiencing payout, with an expected positive effect on take-up if there has been an insured shock and a payout has been received, and a
negative erosion effect if a premium has been paid and either no shock occurred or a shock occurred without a corresponding payout, (2) the effect of observing network payout experiences, which follows the same process of positive and negative effects in relation to stochastic payouts, and (3) a habit forming effect, with past use of the product influencing current demand. We model how these channels would be impacted by subsidies through three separate effects: (1) a scope effect where subsidies enhance take-up and hence the opportunity of witnessing payouts, (2) an attention effect where a lower insurance cost for the individual leads to lower attention given to information generated by payout experiences, and (3) a price anchoring effect, where low past prices reduce current willingness to pay.
Experimental Design Details
Randomization Method
STATA
Randomization Unit
Village and Individual level
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
134 villages
Sample size: planned number of observations
3,474 households
Sample size (or number of clusters) by treatment arms
Non-free: 72 villages
Free: 64 villages
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
Yes
Intervention Completion Date
December 31, 2011, 12:00 +00:00
Data Collection Complete
Yes
Data Collection Completion Date
December 31, 2014, 12:00 +00:00
Final Sample Size: Number of Clusters (Unit of Randomization)
134 villages
Was attrition correlated with treatment status?
No
Final Sample Size: Total Number of Observations
3,442 households
Final Sample Size (or Number of Clusters) by Treatment Arms
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Abstract
Subsidy Policy and Insurance Demand - NBER Working Paper
Citation
Cai, Jing, Alain de Janvry, and Elisabeth Sadoulet. "Subsidy Policies and Insurance Demand." Working Paper, September 2016.

Reports & Other Materials