IDEAS home Printed from https://ideas.repec.org/p/ags/iaae09/51394.html
   My bibliography  Save this paper

Natural Hazards And Risk Aversion: Experimental Evidence From Latin America

Author

Listed:
  • van den Berg, Marrit
  • Fort, Ricardo
  • Burger, Kees

Abstract

We use experimental and survey data from two natural-hazard prone countries in Latin America to test the hypothesis that natural hazards affect risk aversion. We use two methods to measure risk aversion: simple questions on the willingness to pay for a hypothetical lottery and more complicated experiments involving real pay-offs. We find that whereas the experiments provide reasonable estimates of risk aversion, the hypothetical questions result in unrealistic distributions of preferences. The experimental results strongly support the hypothesis that experiencing natural shocks makes people more risk averse, not only in the short run but also in the medium and long run.

Suggested Citation

  • van den Berg, Marrit & Fort, Ricardo & Burger, Kees, 2009. "Natural Hazards And Risk Aversion: Experimental Evidence From Latin America," 2009 Conference, August 16-22, 2009, Beijing, China 51394, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae09:51394
    as

    Download full text from publisher

    File URL: http://purl.umn.edu/51394
    Download Restriction: no

    References listed on IDEAS

    as
    1. Neil McCulloch & Bob Baulch, 2000. "Simulating the impact of policy upon chronic and transitory poverty in rural Pakistan," Journal of Development Studies, Taylor & Francis Journals, vol. 36(6), pages 100-130.
    2. Jyotsna Jalan & Martin Ravallion, 2000. "Is transient poverty different? Evidence for rural China," Journal of Development Studies, Taylor & Francis Journals, vol. 36(6), pages 82-99.
    3. Travis J. Lybbert & David R. Just, 2007. "Is Risk Aversion Really Correlated with Wealth? How Estimated Probabilities Introduce Spurious Correlation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(4), pages 964-979.
    4. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
    5. Dercon, Stefan, 1998. "Wealth, risk and activity choice: cattle in Western Tanzania," Journal of Development Economics, Elsevier, vol. 55(1), pages 1-42, February.
    6. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    7. Ravallion, Martin, 1988. "Expected Poverty under Risk-Induced Welfare Variability," Economic Journal, Royal Economic Society, vol. 98(393), pages 1171-1182, December.
    8. Fellner, Gerlinde & Maciejovsky, Boris, 2007. "Risk attitude and market behavior: Evidence from experimental asset markets," Journal of Economic Psychology, Elsevier, vol. 28(3), pages 338-350, June.
    9. Juan Camilo Cardenas & Jeffrey Carpenter, 2008. "Behavioural Development Economics: Lessons from Field Labs in the Developing World," Journal of Development Studies, Taylor & Francis Journals, vol. 44(3), pages 311-338.
    10. Michael Carter & Christopher Barrett, 2006. "The economics of poverty traps and persistent poverty: An asset-based approach," Journal of Development Studies, Taylor & Francis Journals, vol. 42(2), pages 178-199.
    11. Raghunathan, Rajagopal & Pham, Michel Tuan, 1999. "All Negative Moods Are Not Equal: Motivational Influences of Anxiety and Sadness on Decision Making, , , , ," Organizational Behavior and Human Decision Processes, Elsevier, vol. 79(1), pages 56-77, July.
    12. Cramer, J. S. & Hartog, J. & Jonker, N. & Van Praag, C. M., 2002. "Low risk aversion encourages the choice for entrepreneurship: an empirical test of a truism," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 29-36, May.
    13. Robert M. Townsend, 1995. "Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Economies," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 83-102, Summer.
    14. Deaton, A., 1992. "Saving and Income Smoothing in Cote d'Ivoire," Papers 156, Princeton, Woodrow Wilson School - Development Studies.
    15. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    16. Bar-Shira, Ziv & Just, Richard E. & Zilberman, D., 1997. "Estimation of farmers' risk attitude: an econometric approach," Agricultural Economics of Agricultural Economists, International Association of Agricultural Economists, vol. 17(2-3), December.
    17. Doss, Cheryl & McPeak, John & Barrett, Christopher B., 2008. "Interpersonal, Intertemporal and Spatial Variation in Risk Perceptions: Evidence from East Africa," World Development, Elsevier, vol. 36(8), pages 1453-1468, August.
    18. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
    19. Mette Wik & Tewodros Aragie Kebede & Olvar Bergland & Stein Holden, 2004. "On the measurement of risk aversion from experimental data," Applied Economics, Taylor & Francis Journals, vol. 36(21), pages 2443-2451.
    20. Joost M.E. Pennings & Ale Smidts, 2000. "Assessing the Construct Validity of Risk Attitude," Management Science, INFORMS, vol. 46(10), pages 1337-1348, October.
    21. Alma Cohen & Liran Einav, 2007. "Estimating Risk Preferences from Deductible Choice," American Economic Review, American Economic Association, vol. 97(3), pages 745-788, June.
    22. de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-1417, November.
    23. Zimmerman, Frederick J. & Carter, Michael R., 2003. "Asset smoothing, consumption smoothing and the reproduction of inequality under risk and subsistence constraints," Journal of Development Economics, Elsevier, vol. 71(2), pages 233-260, August.
    24. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Wiley Blackwell, vol. 55(1), pages 3-26.
    25. Stefan Dercon & Pramila Krishnan, 2000. "Vulnerability, seasonality and poverty in Ethiopia," Journal of Development Studies, Taylor & Francis Journals, vol. 36(6), pages 25-53.
    26. Charles A. Holt & Susan K. Laury, 2005. "Risk Aversion and Incentive Effects: New Data without Order Effects," American Economic Review, American Economic Association, vol. 95(3), pages 902-912, June.
    27. Eswaran, Mukesh & Kotwal, Ashok, 1990. "Implications of Credit Constraints for Risk Behaviour in Less Developed Economies," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 473-482, April.
    28. Sachiko Miyata, 2003. "Household's risk attitudes in Indonesian villages," Applied Economics, Taylor & Francis Journals, vol. 35(5), pages 573-583.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hallegatte,Stephane & Bangalore,Mook & Jouanjean,Marie Agnes, 2016. "Higher losses and slower development in the absence of disaster risk management investments," Policy Research Working Paper Series 7632, The World Bank.
    2. Victor STEPHANE, 2016. "How Do Natural Disasters Affect Saving Behavior?," Working Papers 201621, CERDI.
    3. Anh Duc Dang, 2012. "On the Sources of Risk Preferences in Rural Vietnam," ANU Working Papers in Economics and Econometrics 2012-593, Australian National University, College of Business and Economics, School of Economics.
    4. Engle Warnick James C. & Escobal Javier & Laszlo Sonia C., 2011. "Ambiguity Aversion and Portfolio Choice in Small-Scale Peruvian Farming," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-56, November.
    5. Ndoye Niane, Aifa Fatimata & Burger, Kees, 2012. "Gender and Experimental Measurement of Producers Risk Attitude Towards Output Market Price and its Effects on Economic Performance," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126928, International Association of Agricultural Economists.
    6. Balgah, Roland Azibo & Buchenrieder, Gertrud, 0. "Natural Shocks and Risk Behavior: Experimental Evidence from Cameroon," Quarterly Journal of International Agriculture, Humboldt-Universität zu Berlin, vol. 50.
    7. Katengeza, Samson P. & Holden , Stein T. & Fisher , Monica, 2017. "Adoption of Soil Fertility Management Technologies in Malawi: Impact of Drought Exposure," CLTS Working Papers 11/17, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
    8. Katengeza, Samson P. & Holden, Stein T. & Lunduka, Rodney W., 2016. "Adoption of Drought Tolerant Maize Varieties under Rainfall Stress in Malawi," 2016 AAAE Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 246907, African Association of Agricultural Economists (AAAE).
    9. Balgah, Roland Azibo & Buchenrieder, Gertrud, 2011. "Effects of Natural Shocks on Risk Behavior. Experimental Evidence from Cameroon," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114215, European Association of Agricultural Economists.
    10. Lisa Cameron & Manisha Shah, 2015. "Risk-Taking Behavior in the Wake of Natural Disasters," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 484-515.
    11. Dang, Duc Anh, 2012. "On the sources of risk preferences in rural Vietnam," MPRA Paper 38058, University Library of Munich, Germany.
    12. Roos Michael W. M., 2015. "Die Komplexitätsökonomik und ihre Implikationen für die Wirtschaftspolitik," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 16(4), pages 379-392, December.
    13. Dang, Duc Anh, 2012. "On the sources of risk preferences in rural Vietnam," MPRA Paper 38738, University Library of Munich, Germany.
    14. Said, Farah & Afzal, Uzma & Turner, Ginger, 2015. "Risk taking and risk learning after a rare event: Evidence from a field experiment in Pakistan," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 167-183.
    15. repec:unu:wpaper:wp2012-38 is not listed on IDEAS
    16. Chuang, Yating & Schechter, Laura, 2015. "Stability of experimental and survey measures of risk, time, and social preferences: A review and some new results," Journal of Development Economics, Elsevier, vol. 117(C), pages 151-170.
    17. Gheyssens, Jonathan & Günther, Isabel, 2012. "Risk Experiments in Gains and Losses: A Case Study for Benin," WIDER Working Paper Series 038, World Institute for Development Economic Research (UNU-WIDER).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:iaae09:51394. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search). General contact details of provider: http://edirc.repec.org/data/iaaeeea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.