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Natural disaster and risk-sharing behavior: Evidence from rural Bangladesh

Asad Islam (), C. Matthew Leister (), Minhaj Mahmud and Paul Raschky ()
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C. Matthew Leister: Monash University

Journal of Risk and Uncertainty, 2020, vol. 61, issue 1, No 4, 67-99

Abstract: Abstract Using a unique field experiment in rural Bangladesh, this paper investigates how exposure to a natural disaster affects risk-sharing behavior. We conducted a risk-sharing experiment that randomly assigned different levels of risk-sharing commitments to individuals who were exposed and unexposed to a recent natural disaster and asked them to form risk-sharing groups. Our results show that disaster-affected individuals are less likely to defect from risk-sharing groups, regardless of the level of ex-ante commitment. Interestingly, individuals from disaster-affected villages chose riskier bets and realized higher average returns compared with individuals from non-disaster-affected areas. 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)
Date: 2020
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DOI: 10.1007/s11166-020-09334-5

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