Assignment 2 2024.pdf

Assignment 2 Exercise 1: What factors increase the demand for weather insurance? This exercise is an adapted case from the following paper (but you do not need to read the paper to complete the assignment): Cai, Jing, Alain De Janvry, and Elisabeth Sadoulet. "Subsidy policies and insurance demand....

Assignment 2 Exercise 1: What factors increase the demand for weather insurance? This exercise is an adapted case from the following paper (but you do not need to read the paper to complete the assignment): Cai, Jing, Alain De Janvry, and Elisabeth Sadoulet. "Subsidy policies and insurance demand." American Economic Review 110.8 (2020): 2422-2453. Households face different types of weather risks that can generate large fluctuations in income and consumption. To shield individuals from risks, many governments exercise great efforts on developing and marketing formal insurance products. However, in both developing and developed countries, the value placed by individuals on insurance is usually surprisingly low, and initiatives to provide information, subsidies, and to increase trust have had limited success (Cole et al. 2013, Banerjee et al. 2019). Many countries have given up on trying to sell insurance and moved to make insurance mandatory. In this assignment we will study the demand for a weather insurance product for rice producers in China. Rice is the most important food crop in China, with nearly 50 percent of the country’s farmers engaged in its production. In order to maintain food security and shield farmers from negative weather shocks, in 2009 the Chinese government asked the People’s Insurance Company of China (PICC) to design and offer the first rice production insurance policy to rural households in 31 pilot counties.5 The program was expanded to 62 counties in 2010 and to 99 in 2011. The experiment we are studying in this assignment was conducted in 2010 and 2011 in randomly selected villages included in the 2010 expansion in Jiangxi province, one of China’s major rice-producing areas. The product in our study is an area-yield index weather insurance that covers natural disasters, including heavy rains, floods, windstorms, extremely high or low temperatures, and droughts. If any of these disasters occurs and leads to a 30 percent or more average loss in yield in a given area, farmers in that area are eligible to receive payouts from the insurance company. These areas are typically defined as fields that include the plots of 5 to 10 farmers. Data Description  The data for this exercise comes from households in 134 villages in the Jiangxi province, which is considered a representative sample of rice producers in Jiangxi. Households were surveyed and each observation in the dataset, named data_cai_sadoulet_dejanvry.dta, corresponds to a household in that sample. The variables included in the data_CSD.dta that are required for this question are: takeup_2011 : dummy equal to 1 if the household decided to take up the insurance product in 2011 area : area of rice production in mou (mou, Chinese unit of land measurement that varies with location but is commonly 806.65 square yards (0.165 acre, or 666.5 square metres). age : age of household head agpop : household size (number of people living in the same household) male : Gender of household head (1 if male, 0 if female) literacy : dummy equal to 1 if the household head is literate, 0 otherwise Question 1 : Descriptive Statistics Load the dataset data_CSD.dta. Notice that this is a.dta file so you will need to use the haven package. Use the head() function to have a look at the dataset. In [103… library(haven) In : data