Natural disasters, land and labour

We study the behaviour of farmers living under the threat of the Tungurahua Volcano in Ecuador. Recent eruptions have caused significant damage, including crop loss, death of livestock and destruction of dwellings. We collected a unique data set after a major eruption in 2016. We interviewed 222 farmers in the area affected by the eruption and 260 in a nearby control zone to understand why they choose to remain in the risky zone despite the existence of public programmes aimed at relocating them to safe zones. We examine land and labour, which are farmers' primary productive assets. First, we investigate the capitalisation of volcanic hazards in farmland values and find a negative price premium of 21 per cent compared to the control zone. Second, we explore non-farm labour in response to volcanic risk. Finally, we argue that repeated ash fall events increase the illiquidity of farm household assets, such as farmland, and that agricultural human capital is difficult to convert into non-agricultural capital. Our results convey important information for public policies aimed at supporting adaptation and resilience of people living under the threat of volcanoes and other natural disasters.