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Weathering trust

Muhammad Rahman (), Grace H.Y. Lee, Nourin Shabnam and Susantha Jayasinghe

Journal of Economic Behavior & Organization, 2020, vol. 178, issue C, 449-473

Abstract: We show that interpersonal trusting behavior that forms in the very long run is subject to change in the short run after natural disasters. By matching our novel spatially disaggregated water height–based flood severity data on the 1998 flood in Bangladesh with individual-level longitudinal World Values Survey data, we find that individuals experiencing floods reduce their interpersonal trust by at least 8.12 percent. On causal mechanisms, we find that individuals who lack access to credit following a flood shock are more likely to lessen their level of trust in others. Our findings also indicate that post-disaster relief crowds out the adverse effects of floods on trust. Our results are robust to a wide array of randomization tests, restrictive specifications, omitted variable biases, falsification and placebo tests, and external validity checks to the extent possible. Our findings highlight the importance of access to financial resources for stabilizing interpersonal trusting behavior in societies.

Keywords: Trust; Natural disasters; Access to credit; Natural experiment (search for similar items in EconPapers)
JEL-codes: C90 D91 Q54 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jebo.2020.07.027

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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