Hidden Costs of War : Evidence from Nepal's Maoist Insurgency

This paper uses a unique longitudinal data set to examine the costly behavioral changes adopted by agricultural households in response to the 1996 — 2006 Maoist insurgency in Nepal. After the war onset, agricultural households that were exposed to high conflict intensity expand their crop cultivation choices — from mainly cereals to cereals and non-cereals — in order to avoid the Maoist tax on cereals. A one standard deviation increase in conflict exposure induced the average household to expand its number of non-cereal crops from 4.36 to 6.01, a 37.84% increase, while continuing to cultivate the same number of cereal crops. This behavioral change exposed households to greater income risk because the value of non-cereal crops is much more volatile. A risk-averse agricultural household would, as a consequence, suffer a 16.35% decline in welfare