Natural Disaster and Risk-Sharing Behavior: Evidence from Rural Bangladesh*

Asad Islam, Minhaj Mahmud and Paul Raschky

No 03-18, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: This paper investigates how exposure to a natural disaster affects risk-sharing behavior us-ing a unique field experiment in rural Bangladesh. We conducted a risk-sharing experiment that randomly assigned different levels of exogenous commitments to households in disasterexposed and unexposed villages and asked them to form risk-sharing groups. Our results show that disaster-affected individuals are less likely to defect from risk-sharing commit-ments, regardless of the level of ex-ante commitment. Interestingly, this group chose more risky bets and realized higher average returns compared to the non-disaster-affected group. Our results have important implications for the design of financial risk-transfer mechanisms in developing countries.

Keywords: Risk preference; risk sharing, intrinsic motivation; asymmetric information; natural disaster; field experiment (search for similar items in EconPapers)
JEL-codes: C90 C93 D03 D71 D81 O12 Q54 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2019-06
New Economics Papers: this item is included in nep-dev, nep-exp and nep-isf
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Journal Article: Natural disaster and risk-sharing behavior: Evidence from rural Bangladesh (2020)
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