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Abstract

This paper examines which households are more vulnerable when a village is hit by natural disasters. We propose a methodology to infer the theoretical mechanisms underlying the heterogeneity of household vulnerability, focusing on the difference between the across-household-type difference in marginal response to aggregate shocks and that in marginal response to idiosyncratic shocks. Empirical results using two-period panel data from rural Pakistan show that the sensitivity of consumption changes to shocks indeed differs across household types and the patterns of difference can be explained by the coexistence of unequal access to credit and risk sharing among heterogeneously risk-averse households.

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