Research

Working Papers

Community Matters: Psychological Well-Being and Spillovers in an Asset-Building Anti-Poverty Program in Paraguay

Abstract
Asset-building anti-poverty programs that follow BRAC's graduation approach generally yield positive average treatment effects on economic outcomes. However, these averages often mask substantial heterogeneity, and the psychological effects of such programs remain understudied. Leveraging a randomized controlled trial with a staggered rollout and saturation design, I examine how and for whom the Paraguayan government's graduation program works. Midline findings indicate that while the program improves key economic outcomes for most treated households, impacts vary widely across participants. I also find that the program worsens the psychological states of beneficiaries at midline, with measures of depression, locus of control, aspirations, and self-efficacy suggesting that the expectation for program participants to transform their livelihoods may induce stress. A saturation analysis reveals that this psychological decline seems to be attenuated in communities with a higher share of beneficiary households, highlighting the importance of community dynamics in supporting participants. Psychological factors may act as an important source of spillover effects, as beneficiaries in higher-saturation communities experience better economic outcomes than those in communities where fewer neighbors receive the program. The paper discusses what these findings imply for the cost-effective design and implementation of graduation programs.
Working paper available upon request.

The Economics of Sovereign Insurance in Low- and Middle-Income Countries (with Michael R. Carter)

Abstract
The increased frequency and severity of natural disasters have spurred the creation of multilateral risk management facilities that offer sovereign parametric insurance contracts. These contracts provide governments with budgetary support for infrastructure replacement and additional social protection payments that accumulate in the wake of hurricanes and droughts. While the case for prearranged financing is compelling, there is a paucity of economic analysis concerning how much coverage a government should optimally purchase. Parametric insurance makes this question less straightforward because it will sometimes overpredict or underpredict true losses. We answer this question using a formal model of the decision to purchase parametric insurance to finance stochastic social protection needs. We assume that the government has a fixed social protection budget for responding to shocks and seeks to maximize the expected well-being of the drought-affected population. We then calibrate the model using realistic parameters drawn from a scheme designed to insure Kenya's social protection program for its drought-prone regions. The results show that optimal insurance coverage is highly sensitive to both the predictive accuracy of the parametric disaster index and the price of insurance relative to its actuarially fair level. They also indicate that, while the optimal amount of insurance is positive, it is lower than typically imagined. Our analysis underscores the need to improve the predictive accuracy of parametric insurance and to stress-test it using rigorous public finance models.
Working paper available upon request.
Abstract
We study how individuals' risk preferences, subjective expectations about future shocks and well-being, and related risk-taking behavior change following a natural disaster. We focus on the impact of Typhoon Ketsana in 2009---one of the most devastating storms to hit Southeast Asia in recent decades. Our analysis reveals that individuals affected by the typhoon became more risk averse one year after landfall, and that this effect persisted and even increased up to four years later. We base our findings on household-level panel data from Vietnam and a difference-in-differences strategy with a continuous treatment variable that exploits variation in typhoon intensity. We conclude that a standard deviation (SD) increase in excess rainfall during the typhoon led to a 0.11 SD increase in risk averseness one year after landfall and a substantially larger 0.28 SD increase four years after landfall. Individuals exposed to higher excess rainfall also came to expect more frequent storms in the short term, but this effect dissipated over time. Because the increase in risk aversion grew over time even as the belief response faded, belief updating about future storms is unlikely to be the primary mechanism driving the persistent change in preferences. Instead, our mechanism analysis points more strongly to psychological responses, particularly increased pessimism about future well-being. Finally, we find that behavioral responses are concentrated in increased insurance purchasing in the long run, with less persistent evidence of other changes. Our paper contributes to the literature that empirically documents how negative shocks may alter risk preferences and helps illuminate the way climate-related hazards can induce lasting changes in individuals' attitudes and aspects of their economic behavior.
Working paper available upon request.

Asset Protection and Disaster Risk Financing to Improve Shock-Responsive Social Protection in Latin America and the Caribbean (with Michael R. Carter)

Abstract
In Latin America and the Caribbean (LAC), the poorest and most vulnerable households largely engage in informal work/self-employment and are beyond the reach of conventional income maintenance programs that provide shock-responsive social protection for the formally employed. While the poorest households sometimes benefit from conditional cash transfers and economic inclusion asset building programs, making these programs shock-responsive requires recognizing these households as active economic actors who need to build and protect the assets that are key to their livelihood and resilience. Although there has been some progress toward making cash transfer schemes shock-responsive, we argue that effective social protection for this population must extend beyond scalable cash payments and offer customizable asset protection schemes tailored to individual asset exposure. The payoffs to such schemes could be substantial in terms of improved asset accumulation incentives and long-term poverty reduction and resilience. These schemes could leverage parametric disaster risk financing instruments of the sort already present in the region to provide predictable, reliable, and customizable support to the target population. In addition to our core argument concerning the protection of the poorest in LAC, we also consider the role of parametric or index insurance products in underwriting scalable social protection obligations of governments. Our analysis suggests a cautionary perspective on the conventional logic about the important role that parametric insurance products can play as a form of stochastic government support. We show that the degree of reliance on these products depends critically on the reliability of the underlying parametric index. This point is especially important given our emphasis on the necessity of reliable social protection programs that enhance and sustain asset building and protection for the poorest.
Working paper available upon request.

Works in Progress

Impact Evaluation of Take-Up of an Insurance-Based Financial Package for Drought Risk Mitigation among Pastoral Households (with Karlijn Morsink, Nathaniel Jensen, Kelvin Shikuku, Tagel Gebrehiwot, Hyuk Harry Son, and Anouk van Veldhoven) (ongoing RCT)

Reducing Conflict Incentives Through Insurance, Paid Apprenticeships, and Psychological Support (with Karlijn Morsink, Kelvin Shikuku, Emmy Auma, Tagel Gebrehiwot, Nathaniel Jensen, Chris Barrett, Erwin Bulte, Emma Rikken, and Yuma Noritomo) (upcoming RCT)

Improving the Value of Early Warning Weather Forecasts to Pastoralists in the Horn of Africa (with Nathaniel Jensen, Kelvin Shikuku, Hyuk Harry Son, and Jessica Rudder) (upcoming RCT)

Weather Risk, Index Insurance, and Psychological Well-Being

Other Reports

“Weather and climate information for pastoralists: Opportunities and pathways” (with Claire Bedelian, Nelly Bosibori Nyamweya, Robert Muiruri, and Lilian Kirwa). Jameel Observatory Policy Brief.

“Behavioural considerations for effective early and anticipatory action” (with Susan Njambi-Szlapka, Wendy Chamberlin, and Claire Bedelian). Jameel Observatory Policy Brief.

“Evaluating the Case for National Disaster Risk Insurance” (with Michael R. Carter, Francesco Fava, and Nathaniel Jensen). MRR Innovation Lab Evidence Insight.

Blog Coverage

“How Earth Observations Can Help Governments Protect Vulnerable Families from Disaster Risk.” BASIS Feed the Future Innovation Lab for Markets, Risk and Resilience at UC Davis.