Tangential Shocks and Well-being

This page provides access to additional material for the project "Direct shock experience vs. tangential shock exposure: Indirect effects of flood shocks on well-being and preferences".

Findings in a nutshell

We investigate how observing adverse events may trigger a medium-run distortion of reported levels of subjective well-being (SWB). By contrasting satellite and survey data on flood events, we can separate the effects of direct shock experience and potential shock exposure (via tangential shocks).

Flood shocks can have negative consequences for those that only witnessed the event, i.e., merely observing a flood event can be sufficient to increase the prevalence of negative well-being dynamics.

The effects of such TSE are found to be heterogeneous across households and depend on the relative position of a household as well as the timing of the interview. Moreover, for increasing TSE exposure levels, individuals without direct flood experiences may display similar probabilities of negative SWB dynamics as do those who were actually hit by a severe flood shock. Ultimately, if witnessed flood events were rather extreme (e.g., in the top decile in terms of severity) negative SWB dynamics may become more likely in the group of TSE observers than for those directly affected by a shock.

Tangential shock definition

For the purpose of our research we define a tangential shock as a shock event occurring in the sphere of interest (the local or social vicinity) of an individual. Such an event may only be observed by an individual without exerting any immediate ramifications on the observer’s material well-being or health.

Study area

Our geographic focus rests on six provinces in Thailand and Vietnam. This study area has been chosen due to its frequent exposure to environmental shocks, such as flooding. At the same time, agriculture is still the predominant form of securing a household's livelihood. Therefore, households are rather vulnerable when it comes to the repercussions of environmental shocks.

Environmental conditions, village-level shares of individuals with tangential shock exposure and well-being dynamics in 2013

Ultimately, and in line with the literature on subjective well-being or life satisfaction, we are confident that our findings can be generalised beyond the borders of our study area. Individuals' sensitivity regarding the perception of tangential shocks and their (transitory) impact on well-being is, in all likelihood, a widespread phenomenon.

Analytical approach

We investigate the impact of tangential shocks on well-being dynamics by applying the following analytical steps:

• 1. Identification of relevant flood shock events

     • Flood shock experiences, as reported in the household panel (TVSEP), also account for the severity of the shock event;

     • Tangential shocks events (TSE), derived based on the MODIS near real-time global flood mapping project. Drawing on this satellite-based data, we construct several tangential shock indicators for various spheres of interest (1 to 5 kilometres around homesteads) and time horizons (1,3, and 12 months). The indicators account for the local severity of a flood, its spatial spread and its prevalence in relation to a respective household's whereabouts (see below).

2. Convergence of SWB and material well-being - First, we demonstrate that the observed SWB dynamics do indeed reflect changes in fundamental material-wellbeing, i.e. income-related factors. Direct shock experience, however, displays a negative effect on SWB as well. This already indicates that there might be further indirect effects of environmental shocks to be considered.

3. Estimating the impact of TSE - Accounting for heterogeneous effects of tangential shocks, the main findings indicate that merely witnessing shocks in the individual sphere of interest may impinge on SWB dynamics, too. This effect emerges for spheres of interest with intermediate radii (i.e. beyond 3 kilometres) and a time horizon of three to 12 months. The closer to home or the interview date, the stronger the observed effects.

4. Sensitivity analysis - The robustness of TSE effects is evaluated across a wide range of sensitivity checks, controlling for

• 1. • correlated household shock exposure in a village and existing networks, possibly fostering spill-overs of negative well-being dynamics;

     • alternative reported (flood) shocks, such as droughts;

     • flood exposure history, e.g. the average occurrence of a tangential shock in the two pre-interview periods;

     • land usage and growth seasons, highly relevant aspects for farming households;

     • household levels well-being dynamics;

     • psychological factors.

5. Further implications of tangential shocks - There is further evidence that the transitory changes in SWB, triggered by TSE exposure, may have further-reaching implications:

• 1. • TSE exposure not only affects retrospective SWB dynamics but may affect the formation of expectations for the future too. Witnessing flood shocks, without actually being hit, translates into less optimistic expectations regarding the future development of SWB. Notably, we establish that this outcome is not the consequence of a rational belief update.

     • The effects of TSE on SWB expectations could translate into changed preferences towards government redistribution. The results reveal a higher preference for redistribution among individuals with less optimistic future well-being expectations, which are possibly affected by prior TSE exposure.

Related publications

Stein, W., Weisser, R.A. (accepted): Direct shock experience vs. tangential shock exposure: Indirect effects of flood shocks on well-being and preferences; The World Bank Economic Review (download pre-print).

Presentation slides

Poster

Data sources: MODIS near real-time Global Flood Mapping, Thailand Vietnam Socio Economic Panel (TVSEP)