Contrasting risk preferences in the shadow of volcanic background risk: a field experiment in Arequipa, Perú

Mohamed Ali Bchir (), Caroline Cohen, Omar Sene and Marc Willinger
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Mohamed Ali Bchir: UMR GESTE - Gestion Territoriale de l'Eau et de l'environnement - ENGEES - École Nationale du Génie de l'Eau et de l'Environnement de Strasbourg - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Caroline Cohen: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier

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Abstract: We investigate the divergence in risk preferences between individuals exposed to background risk and those who are not, using a field experiment conducted in Arequipa, Peru. Arequipa, a city located in close proximity to the El Misti volcano, is constantly threatened by lahars – mudflows originating from this volcano. Our study combines experimenta l assessments of risk tolerance and patience with a targeted survey designed to assess residents' awareness of their exposure to risks. Our primary finding reveals that residents living in hazard-prone areas exhibit higher levels of risk tolerance compared to their counterparts in safer zones. To address concerns about causality, we employ instrumental variable (IV) regressions and conduct stability analyses of coefficients. We subsequently discuss our findings in the context of the literature on preference adaptation.

Keywords: background risk; risk preferences; risk perception; natural hazards (search for similar items in EconPapers)
Date: 2024-01-09
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Published in Applied Economics, 2024, 56 (60), pp.9081-9100. ⟨10.1080/00036846.2023.2297744⟩

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Journal Article: Contrasting risk preferences in the shadow of volcanic background risk: a field experiment in Arequipa, Perú (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04394909

DOI: 10.1080/00036846.2023.2297744

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