Events

Thursday, September 11, 2014 -
12:00pm to 12:45pm
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Perkins Room, Center for International Development, Rubenstein Building, Harvard Kennedy School, 1 Eliot Street, Cambridge

DRCLAS Brazil Studies Program Seminar

"The Cognitive and Economic Effects of Water Scarcity: Evidence from Northeast Brazil" with Guilherme Lichand (PEG, G4)

Does water scarcity affect cognitive capacity as predicted by theory? If so, does lower cognitive capacity translate into worse economic outcomes? By generating random variation in concerns with water scarcity (priming farmers about rainfall over SMS), we document its negative causal effects on attention, memory and impulse-control. In particular, we document that price learning (but not elasticity computations) is adversely affected by concerns with water scarcity. A simple decomposition of expected income points to large losses due to droughts, a significant share of which due to the psychology of water scarcity. Such losses would be much larger, however, if quantity responses did not partially mute the effects of inaccurate price learning, with implications to policies aimed at alleviating credit constraints.

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