Do tropical typhoons smash community ties? Theory and Evidence from Vietnam

In rural economies, risk-sharing arrangements through networks of relatives and friends are common. Monitoring issues seem to impede the development of informal insurance mechanisms at higher level. As such, after a large and covariate shock, the prerequisites under which informal arrangements are feasible might refrain the community to redistribute efficiently resources between sub-groups. I rely on a model of imperfect commitment to derive predictions on the sustainability of risk-sharing arrangements in the aftermath of extreme events at a higher level than usually considered by the literature. I then test these predictions on a representative panel data in Vietnam, using tropical typhoons trails and wind structures. The estimation of a structural equation derived by the theory is compatible with a model of imperfect commitment where the aftermath of natural disasters is associated with stronger enforcement mechanisms at commune level. As such, between 30 and 55 cents are covered through informal transfers at hamlet level for a relative income loss of $ 1.The influence of pre-disaster social norms and existing ties to prevent disruption of integrative mechanisms in the community gives support to this interpretation. Finally, communities having already suffered important trauma show greater signs of resilience.