Subjective Wealth, Policy Change, and Political Opinions: Evidence from the Cotton Reform in Burkina Faso

Abstract

This paper provides new evidence on the pattern of individual subjective welfare after a natural experiment in policy-led rural development, and aims to identify the causal relationships between subjective welfare and political opinions on the effects of the policy change. I adopt a structural approach by introducing a reference-based utility function that contains a signal of individual participation in the policy change, which is conveyed by political opinions. Using data collected in cotton areas of Burkina Faso, several simultaneous estimations are performed to analyze seemingly covariant political opinions on the recent cotton reform and changes in subjective wealth, while addressing measurement issues related to subjective indicators as well as heterogeneity in latent psychological factors. In addition to absolute and relative indicators of wealth, the large increase in subjective wealth is found to be driven by enthusiastic opinions about the reform’s effects on welfare and poverty alleviation, as well as by technical and institutional changes. The endogenous impact of political opinions on subjective wealth underlies the partial appropriation of the reform’s welfare effects by farmers.