Household vulnerability as low expected utility and responses to risks in Vietnam
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PhD Seminar (Econ)
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This paper investigates sources of household vulnerability and responses to risks in rural Vietnam with data from Vietnam Access to Resources Household Surveys (VARHS). We first adopt the vulnerability as low utility measure (VEU) to estimate and distinguish the sources of vulnerability. Then we use a multivariate probit model to examine the household’s behavior to cope with shocks and finally we evaluate the effectiveness of the insurance mechanism. Our main findings are that, (i) the utility of the average household is 71 per cent less than the hypothetical situation without any risk or inequality in consumption and idiosyncratic shocks contribute 50 per cent of the loss; (ii) households depend heavily on informal coping strategies such as food consumption reduction, saving withdrawal, dropping out or capital depletion. Borrowing money from formal institutions is limited while subsidies from government or NGO are available only in case of natural disaster; and (iii) household consumption and income exhibit highly correlated variation, implying that existing informal insurance schemes are not effective enough.
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