This paper investigates who are more vulnerable to a consumption decline when their village is hit by natural disasters, which cannot be perfectly insured by risk sharing within a village. A methodology is proposed 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. The empirical results using panel data from rural Pakistan, 2001-2004, indicate that the sensitivity of consumption changes to shocks differs across household types, depending on the type of shocks. The patterns suggest the coexistence of unequal access to credit markets and risk sharing among heterogeneous households in terms of risk tolerance.
