Essays on natural shocks, household welfare, and behaviour: evidence from Thailand

This thesis is motivated by the significance of natural shocks for agricultural households in Thailand, which form the majority of the country’s poor. It contributes to the existing literature by providing recent evidence from Thailand, where current research in this field is limited. Three empirical studies were carried out to examine the relationships between shocks, household welfare, and behaviour, using variations in the measures of shocks and across different contexts. The first study estimates the reduced-form effects of rainfall shocks on household income and consumption expenditure, and examines how farming households respond to such shocks. Two explicit measures of extreme rainfall events are constructed from a primary rainfall time series in order to track the incidence of excessive and deficit rainfall on the basis of the rainfall variability. The analysis is based on a pseudo-panel of repeated cross-sectional household surveys conducted between 2006 and 2010, combined with provincial-based measures of rainfall shocks. The results show evidence of consumption smoothing but not of income smoothing in which crop income is highly sensitive to rainfall shocks. Farming households can earn income from off-farm employment and asset sales in compensation for crop income loss. Landless households are more affected by rainfall shocks than better-off households. Dissaving and asset sales are prevalent options in response to extreme rainfall events. The second study considers a particular catastrophic event of the mega flood in 2011 and examines its impacts on household preferences, subjective expectations, and behaviour. This study draws on a survey that was conducted in 2014 in four key rice-growing provinces in Thailand’s central, lower north, and north-east regions, which were severely affected by the flood. Experiencing the mega flood made non-flood-prone households more risk averse, more impatient, and more altruistic. They also adjusted upward their subjective expectations of future severe floods and public insurance, while reducing the dependability of social networks and self-reliance. The flood influenced households’ behaviour, in that flooded households were less likely to have savings and to engage in self-insurance mechanisms, as well as to make productive investments, but more likely to take out crop insurance. The third study provides a comparative analysis of multiple types of shocks by analysing the distribution of shocks, their consequences, and how affected households cope with different shocks. Based on a panel survey of rural and urban households from 2010 and 2012, the results show that natural and health shocks are the most common shocks and that shocks are not uniformly distributed across households but vary according to demographics, livelihoods, and economic status. Imperfect consumption smoothing is evident in that households cannot fully insure their consumption against illnesses and economic shocks. The effects of shocks on household consumption and risk-coping responses also vary by wealth level. Shocks reduce consumption expenditure among poorer households but lead to overspending among richer households. Asset-abundant households are more likely to resort to their own savings or to deplete assets, while asset-poor and resource-constrained households prefer to cut their consumption expenditure or rely on external credit and assistance from relatives