Subsidizing Inclusive Insurance to Reduce Poverty

In the work, it is assumed that the growth of the accumulated capital \(X_t\) of an individual household is given by \N\[\N\frac{dX_t}{dt}=r\cdot [X_t-x^*]^+, \N\]\Nwhere \([x]^+\) is the positive part function, ``the capital growth rate \(r= (1-a)\cdot b \cdot c > 0\) incorporates household rates of consumption (\(0 < a < 1\)), income generation (\(0 < b\)), and investment or savings (\(0 < c < 1\)), and \(x^*>0\) represents the threshold below which a household lives in poverty.\N\NDefinition 2.1 adjusts the random process \(X_t\) in terms of ruin theory. It defines \(T_i\) as the \(i\)-th time event of Poisson process \(N_t\) with parameter \(\lambda>0\) (\(T_0=0\)) and \(Z_i>0\) as a sequence of i.i.d. random variables independent of the process \(N_t\). The exact expressions of \(X_t\) and \(X_{T_i}\) are given in (2.2) and (2.3) respectively. In Section 3, the authors define the ruin time (called the trapping time) \(\tau_x\), the ultimate time ruin probability \(\psi(x)\) and the discounted penalty function at ruin \(m_{\delta}(x)\), which is also known as the Gerber-Shiu function. Under the assumption that \(Z_i\) are exponentially distributed, Proposition 3.1 gives the exact Laplace transform of \(m_{\delta}(x)\). Also, in Section 3, there are provided more numerical characteristics of the ruin time \(\tau_x\).\N\NSection 4 deals with the exact expression of \(m_{\delta}(x)\) too, however, under certain modifications: it is assumed ``that households have the option of enrolling in a microinsurance scheme that covers a certain proportion of the capital losses they encounter. Sections 5 and 6 proceed the work adding ``the cost-effectiveness of government-subsidized premiums, considering the case in which the government subsidizes a certain amount and ``introducing an alternative microinsurance subsidy scheme with flexible premium payments respectively.

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