Are Farmers’ Behaviors Rational When They Pay Less for Social Endowment Insurance? Evidence from Chinese Rural Survey Data

ABSTRACT

In recent years, farmers have had high participation rate in the rural social endowment insurance in China, for which personal contribution and government subsidy are the main funding source. There have been increasingly more farmers participating into the program. However, their enthusiasm for high premium payment was rather low as most of them selected the minimum premium for insurance. In this article, the discounted utility theory from behavioral economics was adopted to analyze insurance selection behaviors of farmers; in addition, a discounted incremental utility model with a hyperbolic discounting function was also further constructed to describe their insurance decision-making processes. Based on the investigation of time preferences of farmers, their insurance participation behaviors of diverse natures were simulated. The corresponding results indicated that active insurance participation and low insurance premium payment were rational choices for most farmers; in comparison, for the elders with higher income, different choices can be made. Therefore, policy makers could formulate differentiated subsidy policies directing at farmers from different groups, so as to stimulate their enthusiasm for premium payment.

KEY WORDS:

• discounted incremental utility
• insurance participation behaviors
• social endowment insurance
• time preference

Notes

1. Why isn’t the simulation performed within a larger scope? The corresponding reason is the possible relation between time preference of farmers and their incomes. In this article, due to limitations of investigation sample size, such a correlation is irrespective, so that enlargement of income simulation range may give rise to higher result errors.

2. Why are most representative farmers are involved? Simulation results of this article indicate that farmers whose incomes are on/below the average level, the selection of the lowest social security payment amount is rational. Furthermore, income distribution of an area is generally biased and the number of people with an income lower than the average amount is larger than that above the average; thus, it is deduced that this is the case for most farmers.

Additional information

Funding

The authors acknowledge the financial support from the National Social Science Foundation of China (No. 17BJL048).