Unintended Consequences of Government Support: Impact of Pakistan’s Flood Relief Program on Adaptation Behavior

Abstract

This paper examines the effect of government support in form of village-level cash transfers on adaptation behaviors. After the devastating 2010 floods, the Pakistan government initiated the Watan Card program, under which all households in a village that was more than 50 percent flooded got a cash transfer. I find that while cash transfer recipients are 20 percent more likely to invest in personal adaptation, they are 22 percent less likely to work with other villagers to invest in community adaptation. Non-damaged households who get the cash transfer just because they reside in a flood- affected village drive this negative effect. These findings hold even after conducting a series of robustness tests including a placebo test. Finally, I show that these findings are consistent with a simple economic model.