Natural disasters and risk aversion: Evidence from Vietnam

Abstract

AbstractVietnam is prone to natural disasters and has incurred a huge loss to property and harvests. This paper ascertains the intermediate impacts of natural disasters on risk aversion. This research utilised a balanced panel dataset to control for household fixed‐effects and thus rule out household time‐invariant factors. The findings suggest that natural disasters make households more likely to be risk‐averse. However, households living in communes that experienced solely one kind of natural disaster or low impact of natural disasters do not change their risk aversion. The loss of household assets is a moderator between natural disasters and risk aversion. In other words, natural disasters cause the loss of assets, this makes households worry about their livelihoods and results in risk aversion. Another finding is the heterogeneous impacts of natural disasters on the risk‐averse behaviour of households. These results are robust and applicable to different model specifications and different measures of risk‐averse behaviour.