The role of environmental shocks in shaping prosocial behavior

All economic activity requires some degree of cooperation, and the process of economic development involves many social dilemmas. It is therefore crucial to understand how the preferences which guide our behavior vis-à-vis these situations are shaped. The ability and willingness to work for the benefit of the group rather than just one's own has evolved over many generations, and is – to some extent – innate to any healthy human being. At the same time, individual prosocial preferences are – also to a certain extent – endogenous to the physical and social environment within which we operate. This thesis identifies several ways in which environmental changes affect intrinsic prosocial preferences, and outlines a possible direction for fixing any such negative effects. In Chapter 1, I introduce the topic of prosocial preferences. I briefly describe how prosociality has been viewed over the course of scientific history, and summarize the current state of knowledge about the formation of social preferences. I further outline how extrinsic incentives can influence prosocial behavior without affecting the preferences which underpin it. Finally, the chapter contains an overview of the methodologies used throughout this thesis. In Chapter 2, I focus on an early formative factor of prosocial preferences—their fetal origins. I study how temperature shocks faced by pregnant women affect their children's later-life prosocial preferences. I find that exposure to higher than usual ambient temperatures during gestation reduces a child's probability of contribution to the public good, with the negative effect lasting into adulthood. Chapter 3 continues in the same vein as Chapter 2, looking at the fetal origins of prosocial preferences. In this chapter, I investigate how prenatal stress induced by random violence affects the preferences for cooperation among children born during an armed conflict. To do so, I exploit variations in the ratio of the lengths of the index and ring fingers—a marker of in utero hormone exposure negatively associated with high maternal distress during early fetal development. I show that prenatal stress reduces the probability that children contribute to the public good. In Chapter 4, I move away from the physical aspects of human environment, focusing instead on the social ones. I study the effects of a sudden introduction of a formal institution on individual cooperative behavior within informal arrangements. In particular, I look at how an NGO intervention which helped create a mutual health insurance affected cooperative behavior in a public goods game. I find that the introduction of formal insurance reduces contributions to the public good. This reduction in cooperation levels is, however, not due to the adopters of the formal insurance who may now have less need for informal reciprocal networks, and who therefore (partially) withdraw from them. It is instead the non-adopters who become less cooperative towards the adopters. To outline a possible direction for remedying the negative environmental effects on prosocial behavior described in the previous three chapters, I illustrate one of the ways in which prosocial behavior can be incentivized with a relatively simple and easily implementable policy. In Chapter 5, I evaluate the impact of introducing performance-based financial incentives on staff effort and, consequently, on allocative efficiency and output in healthcare provision. I show that in the case under investigation, financial incentives conditioned on output and worth roughly 5% of total expenditures increased staff effort to the extent that output rose by over 25%, without any detectable drop in the quality of the provided services. This not only shows the potential of incentive-compatible financing to improve the performance of underfunded healthcare systems in developing countries, but also that extrinsic motivation can be used to foster behavior which benefits the society rather than just the individual. Finally, I combine the main findings from the core chapters of the thesis in Chapter 6. I discuss their policy implications, and point out the some of the outstanding questions, outlining the directions for future research.