Natural Disasters, Preferences, and Behaviors: Evidence from the 2011 Mega Flood in Cambodia

Abstract

This paper uses original survey data to examine the impacts of the 2011 mega flood on preferences, subjective expectations, and behaviors among rice-farming households in Cambodia, a country with weak formal institutions. We find flood victims show greater risk aversion and altruism, and lower impatience and trust of friends and local governments. The disaster also induced flooded households to adjust upward their subjective expectations of future floods and reliance on natural resources as a safety net. Mediating through these changes in preferences and expectations, the 2011 flood also affected household behaviors, some of which could in turn affect long-term economic development and resilience to future floods. We find that flooded households reduced productive investment, substituted away from social insurance by increasing self- and market-based insurance instruments, and more importantly, increased the use of natural resources as insurance. These findings shed light on the design of incentive-compatible safety nets and development interventions in an economy with underdeveloped institutions.