| Abstract: |
Natural experiments are advocated as one of the best solutions to solve
causality dilemmas in the correlation between two variables. Studies on the
relation between money and happiness argue that higher income should imply
higher life satisfaction levels. However, happier people might also be more
entreprising and active in looking for the best job opportunities. Therefore,
identifying the causality direction gets difficult from an econometric point
of view. Following this principle, research on the nexus between life
satisfaction and income has looked at lottery winners or post-communism
transition to document that exogenous changes in income generate effects of
the same sign on happiness. In this paper we consider the unfortunate tsunami
event as a negative lottery and examine the effects of the tsunami related
income losses on life satisfaction and selfesteem of a sample of Sri Lankan
microfinance borrowers. Our empirical findings help to discriminate between
various effects of material damages and monetary losses, both having strong
significant impact on the dependent variables. The main contributions of the
paper are that (i) we overcome the causality problem by measuring the impact
of an exogenous shock on human wellbeing and (ii) we do this on a sample of
MFI borrowers of a developing country, thus with people close to the poverty
line, instead of people from western or transition countries as in the
previous literature. |