19 livelihood system, at least among those closer to the metropolitan area. It concerns here largely households in the Mekong River Delta, who have their livelihood systems built around floods (“living with flood”, very much as in Bangladesh (Beck, 2005)). Comparison of self‐reported flood measures with the riverine flood measure used here (taken from the DFO) supports this interpretation. The flood incidence based on the latter measure is much larger than the flood incidence based on the former, indicating that not all floods recorded in DFO are actually also experienced as negative events by the households themselves. It is not so much the flooding as such which is detrimental, but rather its duration and level, rendering only a subset of the DFO observed floods really damaging.

# _Immediate, lagged and persistent welfare effects by event_

For a more detailed shock by shock comparison of the welfare effects, the study turns to the Maximum Likelihood welfare estimates, which also correct for spatial correlation (Table 1, column 4). While they qualitatively correspond to the OLS estimates in column 3, the size of the effects changes at times substantially and the coefficients are also more precisely estimated, yielding additional insights. This is expected given that both the tests for spatial lags and errors (not reported here) point to the existence of spatial correlation (within and beyond the cluster). To provide some further intuition to the findings, it is simultaneously explored how households cope with each of the shocks. In particular, the immediate, lagged and persistent effects of the different natural disasters on a household’s asset holdings, its reception of official disaster relief and domestic and foreign remittances, and its degree of income diversification as captured in the Herfindahl index,<sup>38</sup> are given in Table 2. The effects of natural disasters on asset holdings and income diversification are estimated using OLS with suitable corrections for heteroskedasticity and cluster design, while left censored tobits are used for the household assistance regressions, as many households did not receive any assistance/remittances. To control for household, community and environmental characteristics, the same controls are used as in the household welfare regressions above. The ML results are repeated in the first column (Table 2, column 1) to facilitate the discussion.

# _Droughts reduce welfare, though mainly among those with few irrigated plots._

As before, there are no statistically significant signs of immediate or lagged effects of droughts. Further investigation using the 2004 and 2006 survey years for which information on irrigation is also available, shows that irrigation provides effective protection against droughts. In particular, households with no irrigated plots see their per capita consumption decline by 16 percent on average the year of the drought, while those with all their plots irrigated (the majority of the sample) experiencing only a 3 percent loss in welfare. In other words, irrigation proves quite effective in protecting households from drought. No lagged effect of droughts is observed. Self‐ insurance through asset disposal (which shows up with a lag (Table 2, column 2)) and income diversification (lower Herfindahl index), especially in drought prone areas, enable households to further soften the blow of immediate drought shocks. Yet, this also erodes their asset base over time, consistent with the lower welfare observed in drought prone areas. The loss can be

> 38 The Herfindahl index is a measure of income diversification, defined as the sum of the squares of the different income shares.  It ranges between one and zero, with 1 indicating full specialization and lower values pointing to increasingly diversified income portfolios.