Natural disasters give rise to loss and damage and may affect subjective expectations about the prevalence and severity of future disasters. These expectations might then in turn shape individuals’ investment behaviors, potentially affecting their incomes in subsequent years. As part of an emerging literature on endogenous preferences, economists have begun studying the consequences that exposure to natural disasters have on risk attitudes, perceptions, and behavior. We add to this field by studying the impact of being struck by the December 2012 Cyclone Evan on Fijian households’ risk attitudes and subjective expectations about the likelihood and severity of natural disasters over the next 20 years. The randomness of the cyclone’s path allows us to estimate the causal effects of exposure on both risk attitudes and risk perceptions. Our results show that being struck by an extreme event substantially changes individuals’ risk perceptions as well as their beliefs about the frequency and magnitude of future shocks. However, we find sharply distinct results for the two ethnicities in our sample, indigenous Fijians and Indo-Fijians; the impact of the natural disaster aligns with previous results in the literature on risk attitudes and risk perceptions for Indo-Fijians, whereas they have little to no impact on those same measures for indigenous Fijians. To provide welfare implications for our results, we compare households’ risk perceptions to climate and hydrological models of future disaster risk, and find that both ethnic groups over-infer the risk of future disasters relative to the model predictions. If such distorted beliefs encourage over-investment in preventative measures at the cost of other productive investments, these biases could have negative welfare impacts. Understanding belief biases and how they vary across social contexts may thus help decision makers design policy instruments to reduce such inefficiencies, particularly in the face of climate change.
Despite the growing attention to technology adoption in the economics literature, knowledge gaps remain regarding why some valuable technologies are rapidly adopted, while others are not. This paper contributes to our understanding of agricultural technology adoption by showing that a focus on yield gains may, in some contexts, be misguided. We study a technology in Ethiopia that has no impact on yields, but that has nonetheless been widely adopted. Using three waves of panel data, we estimate a correlated random coefficient model and calculate the returns to improved chickpea in terms of yields, costs, and profits. We find that farmers’ comparative advantage does not play a significant role in their adoption decisions and hypothesize that this is due to the overall high economic returns to adoption, despite the limited yield impacts of the technology. Our results suggest economic measures of returns may be more relevant than increases in yields in explaining technology adoption decisions.
Natural disasters give rise to loss and damage and may affect subjective expectations about the prevalence and severity of future disasters. These expectations might then in turn shape individuals' investment behaviors, potentially affecting their incomes in subsequent years. As part of an emerging literature on endogenous preferences, economists have begun studying the consequences that exposure to natural disasters have on risk attitudes, perceptions, and behavior. We add to this field by studying the impact of being struck by the December 2012 Cyclone Evan on Fijian households' risk attitudes and subjective expectations about the likelihood and severity of natural disasters over the next 20 years. The randomness of the cyclone's path allows us to estimate the causal effects of exposure on both risk attitudes and risk perceptions. Our results show that being struck by an extreme event substantially changes individuals' risk perceptions as well as their beliefs about the frequency and magnitude of future shocks. However, we find sharply distinct results for the two ethnicities in our sample, indigenous Fijians and Indo-Fijians; the impact of the natural disaster aligns with previous results in the literature on risk attitudes and risk perceptions for Indo-Fijians, whereas they have little to no impact on those same measures for indigenous Fijians. To provide welfare implications for our results, we compare households' risk perceptions to climate and hydrological models of future disaster risk, and find that both ethnic groups over-infer the risk of future disasters relative to the model predictions. If such distorted beliefs encourage over-investment in preventative measures at the cost of other productive investments, these biases could have negative welfare impacts. Understanding belief biases and how they vary across social contexts may thus help decision makers design policy instruments to reduce such inefficiencies, particularly in the face of climate change.
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