Safety Net forAggregate Shocks in Developing Countries

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The goal of this study is to suggest an efficient and effective safety net for natural disasters. In order to pursue this research question, I examined the impact of disasters on the livelihood of affected people, and the roles ofgovernment and NGOs in helping them. By using unique datasets from household survey and an economic experiment, I obtained the following results. First, natural disasters affectthe livelihood of individuals significantly, and therefore it is essential for the government and NGOs to provide reliefs during the hardships. Second, disasters increase the time allocation for the income earning activities, as well as demand for mutual insurance among villagers. These, in turn, affect the level of trust among villagers in various ways. Finally, a decline in social capital, such as trust, is significantly associated with the increases in crime in the disaster -affected areas.