[Brazil@Harvard] Thursday @ HKS - The Cognitive and Economic Effects of Water Scarcity: Evidence from Northeast Brazil

*The Cognitive and Economic Effects of Water Scarcity: Evidence from Northeast Brazil* Thursday, September 11th, from 12:00 to 12:45 in the Perkins Room at HKS. *Guilherme Lichand* (PEG, G4) Does water scarcity affect cognitive capacity as predicted by theory? If so, does lower cognitive capacity translate into worse economic outcomes? By generating random variation in concerns with water scarcity (priming farmers about rainfall over SMS), we document its negative causal effects on attention, memory and impulse-control. In particular, we document that price learning (but not elasticity computations) is adversely affected by concerns with water scarcity. A simple decomposition of expected income points to large losses due to droughts, a significant share of which due to the psychology of water scarcity. Such losses would be much larger, however, if quantity responses did not partially mute the effects of inaccurate price learning, with implications to policies aimed at alleviating credit constraints.