Vulnerability of Household Consumption to Village-level Aggregate Shocks in a Developing Country
AbstractVillage-level aggregate shocks such as droughts and floods cannot be perfectly insured by risk sharing within a village. Then, what type of households are more vulnerable in terms of a decline in consumption when a village is hit by such natural disasters? This question is investigated in this study by using two-period panel data for the years 2001 and 2004 from rural Pakistan. We propose a methodology to infer the theoretical mechanisms underlying the heterogeneity of households in terms of their vulnerability, and focus on the difference between the across-household-type difference in marginal response to aggregate shocks and that in marginal response to idiosyncratic shocks. The empirical results obtained indicate that the sensitivity of consumption changes to shocks differs across household types, depending on the type of natural disasters. Moreover, land and credit access are effective in mitigating the ill-effects of various types of shocks. Household heads who are educated or elderly and households with a greater number of working members bear a larger burden of the village-level shocks; however, they are not vulnerable to idiosyncratic health shocks. It is revealed that these patterns may be explained by the coexistence of unequal access to credit markets and risk sharing among heterogeneous households in terms of risk tolerance.
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Bibliographic InfoPaper provided by Institute of Economic Research, Hitotsubashi University in its series PRIMCED Discussion Paper Series with number 8.
Length: 36 p.
Date of creation: Feb 2011
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-AGR-2011-11-07 (Agricultural Economics)
- NEP-ALL-2011-11-07 (All new papers)
- NEP-DEV-2011-11-07 (Development)
- NEP-IAS-2011-11-07 (Insurance Economics)
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