Households experience many types of micro (i.e., local) and macro level exogenous shocks. This dissertation includes three essays that focus on household and individual level welfare effects and coping strategies to shocks. In the first essay, I examine the role of risk preferences in the adoption decision of climate smart technology that helps farmers cope with water shortages due to changing climate. In the second essay I estimate the impact of in-utero weather shock on child’s nutrition status and whether the effects differ by household income, implying different coping strategies used by rich versus poor households. In my final essay, I focus on the impact of macro-level political shocks when three large states in India were divided into smaller states, and estimate the developmental outcomes of this division on both the new and the parent states.My first essay is situated in the literature of technology adoption with a focus on role of risk preferences in adoption decision. I conducted household surveys and a field experiment to elicit the risk preference of farmers from two northern states in India; and used them to explain their adoption decision of Laser Land Leveler. This technology is primarily a water saving technology and is therefore very useful in this region of India under growing ground water stress. Along with reducing water use, this technology also reduces greenhouse gas emission, and is therefore termed as a climate smart technology. Our analyses extend the measurement of risk preferences beyond expected utility theory by incorporating prospect theory. I use survival analysis as my empirical strategy to model time to adoption and find that risk averse farmers and farmers who overvalue smaller probabilities tend to adopt this technology sooner than others.My second essay examines the impact of rainfall shocks during gestational period that pregnant mothers in Malawi experience on the health outcomes of their children less than 5 years of age. About 85% of Malawians reside in rural areas and most of them depend on agriculture. With almost no irrigation system in place, the reliance on natural rainfall is high and therefore shifts in rainfall patterns highly affect their lives. I find that higher rainfall in the in-utero period is associated with better child nutrition outcomes, but excessive rainfall negatively affects child’s health. We also find that these effects persist until initial years for all children. However, for children from richer households the effects seem to fade away over time, but for children born in poorer households, these effects persist longer term. My third essay focuses on the role of greater autonomy or more homogeneous jurisdictions on development indicators. In this essay I examine the case of India where the splitting of three bigger states lead to the creation of three new states in the year 2000. Since states can be considered as the proximate determinants of local institutions driving developmental outcomes, a change in their boundaries provides an opportunity to evaluate the impact of these shifts on the provision of public goods and services. I use the comprehensive datasets of Demographic Health Survey and apply quasi-experimental methods, such as difference-in-differences and geographic regression discontinuity to show that districts in the newly created states on average are doing better than the parent states on development indicators after splitting from their parent states. We find that splitting of states has induced better governance, service delivery, and significantly improved living standards and development outcomes in the newly formed states. However, on most indicators, the parent state has been worse-off after the split. The results of this study provide new evidence that institutions matter for development, and local control of institutions can have large economic impacts on the smaller state that is separating from a larger state.
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