With these considerations in mind, in this paper, we carry out an analysis of the welfare impacts of climatic variability in the rural areas of the Philippines. One of the main objectives of our study is to quantify the extent to which unusual or erratic weather has any negative impacts on the welfare of Filipino households. Erratic weather may affect agricultural productivity which, depending on how effective was the portfolio of _ex ante_ and _ex post_ risk management strategies employed, may translate into reduced income and reduced food availability at the household level. Based on historical experience and the multiplicity of economic and institutional constraints faced, rural households in the Philippines, as most rural households all over the world, have managed to develop traditional strategies for managing climatic risk. For example, households may undertake _ex-ante_ income-smoothing strategies and select a diversified portfolio of occupations across its adult members that guarantee a minimum level of consumption (Menon, 2009) or adopt low return-low risk crop portfolios (Rosenzweig and Binswanger, 1993). Furthermore, households may use their savings (Paxson, 1992), take loans from the formal financial sector to carry them through the difficult times (Udry, 1994), sell assets (Deaton, 1992), or send their children to work instead of school in order to supplement income (Jacoby and Skoufias, 1997). Additional strategies include the management of income risk through _ex-post_ adjustments in labor supply such as multiple job holding, and engaging in other informal economic activities (Morduch, 1995; Kochar, 1988).<sup>3</sup> Yet, quantitative evidence on how successful such risk management strategies are at protecting household welfare from weather-related shocks in the Philippines is quite scarce.<sup>4</sup> To the extent that the current risk-coping mechanisms are not very effective in protecting welfare from erratic weather patterns one can be quite certain that the change in the patterns of climatic variability associated with climate change is likely to reduce the effectiveness of the current coping mechanisms even more and thus increase household vulnerability further.

Our analysis relies on three recent rounds (2003, 2006 and 2009) of the Family Income and Expenditure Survey, a nationally representative survey of approximately 22,000 (different) households surveyed per round. We match the survey to rainfall data from 43 rainfall stations in the Philippines. For our purposes, it is of interest to note that there was substantial variation in rainfall over the period, with 2002 being a year with some drought and 2008 being a year with rather high rainfall.

There is some evidence of the impact of weather shocks on consumption. Microsimulation exercises estimate that 0.9 points of Philippines GDP were lost to El Niño Southern Oscillation (ENSO) in 2010 (Narayan et al., 2010). In the same set of estimates, it is found

> 3 There are other channels through which weather may affect the wellbeing of individuals.  For example, the changes in climate may increase (or decrease) the prevalence of certain diseases and thus have impacts on health outcomes. Skoufias and Vinha (2011) for example, explore the impacts of weather shocks on the height for age of children less than three years of age in rural Mexico.

> 4  Other studies relying on self-reported incidence of different types of shocks, such as floods, droughts, freeze, fires and hurricanes include Garcia Verdu (2002), Skoufias (2007) and de la Fuente (2010). None of these earlier studies, however, use actual meteorological data.

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