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Inflated Expectations and Natural Resource Booms: Evidence from Kazakhstan

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Listed author(s):
  • Gerhard Toews
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    Abstract

    In this paper we identify the effect of an oil price boom on households' satisfaction with income. In a natural experiment the increase in the oil price is used as an exogenous shock affecting households located in the oil and gas rich region of Kazakhstan. to evaluate the effect we use the Household Budget Survery of Kazakhstan from 2001 to 2005, a quarterly, unbalanced panel of 12,000 households. An important feature of this survey is that household heads were asked to report their "satisfaction with household income" on a scale from 1 to 5. Our results suggest that a 10% increase in the oil price decreased household's satisfaction with income by 2% with a lag of two quarters. We argue that this is due to peoples' inflated expectations regarding their income. this result highlights the importance of managing expectations in a rapidly changing economic environment.

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    File URL: http://www.oxcarre.ox.ac.uk/images/stories/papers/ResearchPapers/oxcarrerp2013109.pdf
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    Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 109.

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    Date of creation: 2013
    Handle: RePEc:oxf:oxcrwp:109
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    Keywords: Resource Booms; Conflicts; Reference Point Formation;

    Find related papers by JEL classification:

    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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    9. Kalyuzhnova, Yelena & Kambhampati, Uma, 2008. "The determinants of individual happiness in Kazakhstan," Economic Systems, Elsevier, vol. 32(3), pages 285-299, September.
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