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Risk and time preferences under the threat of background risk: a case-study of lahars risk in central Java

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  • Marc Willinger
  • Mohamed Ali Bchir
  • Carine Heitz

Abstract

We study the evolution of preferences of villagers living under the threat of natural hazards in a volcanic area (Mount Mer- api, Central Java). Between December 2010 and April 2011, shortly after a major eruption, the villagers (perceived) expo- sure changed dramatically. We ran incentivized experiments at the beginning and after this period in order to elicit villagers' risk preferences and time preferences. Our three main ndings are as follows: (1) there exists a signi cant negative correlation between risk-tolerance and impatience (before and after): individuals who are more risk-tolerant are less impatient; (2) most respondents exhibit a change in their risk preference and/or time preference after having been exposed to a higher level of threat; (3) there ex- ists a signi cant negative correlation between the erosion of risk tolerance and the erosion of patience: individuals who became less (more) risk-tolerant also became more (less) impatient.

Suggested Citation

  • Marc Willinger & Mohamed Ali Bchir & Carine Heitz, 2013. "Risk and time preferences under the threat of background risk: a case-study of lahars risk in central Java," Working Papers 13-08, LAMETA, Universtiy of Montpellier, revised May 2013.
  • Handle: RePEc:lam:wpaper:13-08
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    References listed on IDEAS

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    Cited by:

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    2. Hoel, Jessica B. & Schwab, Benjamin & Hoddinott, John, 2016. "Self-control exertion and the expression of time preference: Experimental results from Ethiopia," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 136-146.
    3. Pierluigi Conzo, 2018. "Natural Disasters and Social Preferences: The Effect of Tsunami-Memories on Cheating in Sri Lanka," Journal of Development Studies, Taylor & Francis Journals, vol. 54(10), pages 1912-1931, October.
    4. Liebenehm, Sabine, 2018. "Temporal Stability of Risk Attitudes and the Impact of Adverse Shocks—A Panel Data Analysis from Thailand and Vietnam," World Development, Elsevier, vol. 102(C), pages 262-274.
    5. Callen, Michael, 2015. "Catastrophes and time preference: Evidence from the Indian Ocean Earthquake," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 199-214.
    6. 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.
    7. Yao, Dongmin & Xu, Yixuan & Zhang, Pengyuan, 2019. "How a disaster affects household saving: Evidence from China’s 2008 Wenchuan earthquake," Journal of Asian Economics, Elsevier, vol. 64(C), pages 1-1.
    8. Kettlewell, Nathan & Rijsdijk, Fruhling & Siribaddana, Sisira & Sumathipala, Athula & Tymula, Agnieszka & Zavos, Helena & Glozier, Nicholas, 2018. "Civil War, Natural Disaster and Risk Preferences: Evidence from Sri Lankan Twins," IZA Discussion Papers 11901, Institute of Labor Economics (IZA).

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