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Natural disaster and risk-sharing behavior: Evidence from rural Bangladesh

Author

Listed:
  • Asadul Islam

    () (Monash University)

  • C. Matthew Leister

    () (Monash University)

  • Minhaj Mahmud

    () (Bangladesh Institute of Development Studies (BIDS))

  • Paul A. Raschky

    () (Monash University)

Abstract

Using a unique field experiment in rural Bangladesh, this paper investigates how exposure to a natural disaster affects risk-sharing behavior. We conducted a risk-sharing experiment that randomly assigned different levels of risk-sharing commitments to individuals who were exposed and unexposed to a recent natural disaster and asked them to form risk-sharing groups. Our results show that disaster-affected individuals are less likely to defect from risk-sharing groups, regardless of the level of ex-ante commitment. Interestingly, individuals from disaster-affected villages chose riskier bets and realized higher average returns compared with individuals from non-disaster-affected areas. Our results have important implications for the design of financial risk-transfer mechanisms in developing countries.

Suggested Citation

  • Asadul Islam & C. Matthew Leister & Minhaj Mahmud & Paul A. Raschky, 2020. "Natural disaster and risk-sharing behavior: Evidence from rural Bangladesh," Journal of Risk and Uncertainty, Springer, vol. 61(1), pages 67-99, August.
  • Handle: RePEc:kap:jrisku:v:61:y:2020:i:1:d:10.1007_s11166-020-09334-5
    DOI: 10.1007/s11166-020-09334-5
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    More about this item

    Keywords

    Risk preference; Risk-sharing; Intrinsic motivation; Asymmetric information; Natural disaster; Field experiment;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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