Price Discount Voucher Discontinuity Effect
RCTReview
Commercial weather index insurance experiences zero adoption among smallholders at unsubsidized market prices, but introducing promotional discount vouchers triggers significant purchasing jumps that linear price elasticity models fail to project.
Picture this
Imagine a store selling a new emergency radio for fifty dollars, and zero customers buy it. When the manager hands out ten-dollar gift vouchers, crowds immediately use the vouchers to buy partial insurance coverage, even though almost no one pays additional cash out of their own pockets.
What the evidence says
Unsubsidized uptake was exactly 0% among study subjects receiving no voucher. Receiving a voucher increased insurance purchase probability by 34.4% to 38.0% (p < 0.01), with only 21% of buyers contributing any personal cash beyond the voucher value.
- Who was studied
- N = 460 rural smallholder households tracked across 23 treatment villages with active insurance sales in Amhara, Ethiopia.
- How
- Randomized control trial assigning individual-level price discount vouchers (0 to 500 Birr) evaluated via probit regressions with Kebele-fixed effects.
What to do
Deploy promotional subsidy vouchers during initial market rollouts to induce trial and overcome zero-demand adoption barriers for complex novel financial products.
From the source
"In reality, those offered a zero subsidy within the study sample had exactly zero uptake, indicating that there is an enormous effect of the vouchers (independent of subsidy amount) on realized demand."
Productivity, credit, risk, and the demand for weather index insurance in smallholder agriculture in Ethiopia