Vulnerability of Household Consumption to Floods and Droughts in Developing Countries: Evidence from Pakistan
AbstractAggregate shocks such as droughts and floods cannot be perfectly insured by risk sharing within a village. Given this inability, what type of households are more vulnerable in terms of a decline in consumption when a village is hit by such shocks and what kind of microeconomic mechanism underlies the household heterogeneity in vulnerability? These questions are investigated using two-period panel data collected in rural Pakistan in 2001 and 2004. We compare consumption response to droughts, floods, and health shocks and investigate how the response differs across different types of households. Empirical results show that the impact of droughts was negligible, younger and more landed households were less vulnerable to floods, and households with greater access to formal financial institutions were less vulnerable to idiosyncratic health shocks. The empirical pattern suggests the possibility of risk sharing among households that are heterogeneous in both risk aversion and credit access.
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Bibliographic InfoPaper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2012-10.
Length: 34, 13 p.
Date of creation: Mar 2013
Date of revision:
natural disaster; consumption smoothing; risk sharing; self-insurance; Pakistan;
Find related papers by JEL classification:
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-DEV-2013-04-27 (Development)
- NEP-IAS-2013-04-27 (Insurance Economics)
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