Yao D, Xu Y, Zhang P, et al. How a disaster affects household saving: Evidence from China’s 2008 Wenchuan earthquake[J]. Journal of Asian Economics, 2019.

Abstract: Previous studies have yielded contradictory findings on whether a natural disaster increases or decreases time preference and hence, respectively, lowers or raises saving. This paper delves into the psychological essence of time preference and proposes a theoretical path by which a disaster affects time preference through its impact on cognitive self-control. The theoretical framework is applied to analyzing the saving behavior of households impacted by the 2008 earthquake in Wenchuan, China. The analysis reveals that the effect on cognitive self-control, as manifested in variables calibrating attention and mood, differs according to severity of damage and level of income. Individuals in more severely affected counties and of lower income levels show diminished cognitive self-control consistent with post-traumatic stress disorder. Conversely, individuals in more moderately affected counties and of higher income levels show enhanced cognitive self-control consistent with the findings of post-traumatic growth reported in some studies. A further stage of the analysis shows cognitive self-control to be directly related to saving behavior. This implies that more severely affected and lower income households should exhibit decreases in saving, and vice versa, and this relationship is confirmed by direct estimation. Estimation of the relationships between the earthquake and both the cognitive self-control indicators and the saving rate makes use of propensity score matching and difference in difference techniques while estimation of the relationship between the cognitive self-control indicators and the saving rate makes use of generalized quantile regression. The finding of differing psychological reactions to the disaster resolves the controversy surrounding the direction of the effect of a disaster on saving behavior.

Keywords: DisasterTime preferenceCognitive self-controlSaving behaviorChina