Journal Article
Casaburi, Lorenzo, and Jack Willis. “Time vs. State in Insurance: Experimental Evidence from Contract Farming in Kenya.” American Economic Review (Forthcoming). AEA Pre-RegistrationAbstract

The gains from insurance arise from the transfer of income across states. Yet, by requiring that the premium be paid upfront, standard insurance products also transfer income across time. We show that this intertemporal transfer can help explain low insurance demand, especially among the poor, and in a randomized control trial in Kenya we test a crop insurance product which removes it. The product is interlinked with a contract farming scheme: as with other inputs, the buyer of the crop offers the insurance and deducts the premium from farmer revenues at harvest time. The take-up rate for pay-at-harvest insurance is 72%, compared to 5% for the standard pay-upfront contract, and the difference is largest among poorer farmers. Additional experiments and outcomes provide evidence on the role of liquidity constraints, present bias, and counterparty risk, and find that enabling farmers to commit to pay the premium just one month later increases demand by 21 percentage points.


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Kremer, Michael, and Jack Willis. “Guns, Latrines, and Land Reform: Dynamic Pigouvian Taxation.” American Economic Review Papers and Proceedings 106, no. 5 (2016): 83-88. Publisher's VersionAbstract

Dynamically and statically optimal Pigouvian subsidies and taxes on durables will differ in a growing economy. In a dynamic game, consumers may delay purchasing durables with positive externalities, such as latrines, anticipating greater future subsidies. Governments can most cheaply induce optimal purchasing by committing to make subsidies temporary. The presence of multiple subsidizing bodies, including foreign donors, may make commitment impossible, generating delays in private investment that more than fully offset the social benefits of transfers. For durables with negative externalities, such as guns, anticipated future taxes or regulation may encourage current purchase, potentially causing policymakers who would otherwise prefer taxes or regulation to abandon such policies. Political actors may also be able to shape others’ policy preferences by changing private expectations. For example, a political party that announces an intent to redistribute land may reduce investment incentives for current owners, thus reducing the benefits of maintaining existing property rights and making land reform more attractive to the median voter.