Can public policies change risk preferences? The effect of property titling on risk aversion

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June 2017
Paper author(s): 
Fernando M Aragon
Oswaldo Molina
Ingo W. Outes-Leon
Fiscal Policy - Public and Welfare Economics

Evidence suggests that major events, like war or natural disasters, affect risk preferences. This paper shows that similar effects can also be caused by public policies. Using the case of a large titling program in Peru, we find that this policy reduced risk aversion. The effects are sizeable and seem to be driven by the reduction in background risk associated with improved security of tenure. Our results highlight the potential of public policies to affect human behavior not only by shaping the economic environment, but also by changing individual preferences.


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