(2011)) by making the more educated with relatively more access to ARVs even more productive than the less educated.<sup>62</sup> Overall, these patterns between human capital and HIV suggest that a universal ARV policy in countries like Malawi — where about 10% of the population is infected with HIV — could help mitigate income inequality but we acknowledge this deserves further exploration. Note that ISA does not test the sampled households for HIV.<sup>63</sup>

# **5.4 Risk and Insurance**

Here we exploit the large household sample in the Malawi ISA 2010 to study the cross-sectional relationship of risk, insurance, and inequality, relying on both the risks and consumption insurance mechanisms self-reported by households. We pay particular attention to the self-reported ability to borrow.

# **5.4.1 Self-Reported Risks and Insurance Mechanisms**

In the past 12 months, in rural areas, 43% of households have suffered an aggregate shock, 6% an idiosyncratic shock, and 22% both types of shocks in the past 12 months, leaving 29% of the population without shocks. In urban areas, 15% of households have suffered an aggregate shock, 13% an idiosyncratic shock, and 11% both types of shocks in the past 12 months, leaving 61% of the population without shocks. The most common aggregate shock in rural areas is rain, 43% of households report a rain shock (too little or too much), followed by agricultural costs (33%) and food prices (26%) (see panel A1 in Table 13).<sup>64</sup> In urban areas, a smaller number — 49% of households — report some shock. The most common aggregate shocks in urban areas are unexpected high food prices, reported by 18% of households, which highlights the tight link between rural and urban areas. In both rural and urban areas, health shocks are the most important idiosyncratic shocks, followed by death and theft.<sup>65</sup> In general, households that report suffering one of these main shocks (in particular, rain in rural areas) are poorer in consumption

> 62This might not be straightforward as education subsidies that increase schooling do not reduce sexually transmitted infection by themselves and require a combination with a governmental HIV curriculum to do so (see Duflo et al. (2015)). Further, by decreasing life expectancy and the returns to schooling, it is natural to think that HIV potentially reduces schooling and, hence, human capital accumulation (see Fortson (2011)). Indeed, the increasing availability of ARVs tends to increase physical and human capital investments through a lower perception of mortality risk (Baranov and Kohler (2015)).

> 63See also Durevall and Lindskog (2012) for further discussion on the effects of HIV on inequality.

> 64Here we define rain as a type of aggregate shock, but we acknowledge there is rainfall dispersion across households. If we redefine rain as an idiosyncratic shock, then we find that in rural areas 14% of households have suffered only an aggregate shock, 25% only an idiosyncratic shock, and 31% both types of shocks in the past 12 months. The planting of maize needs to be timely. Rains that come too early or too late are as problematic as droughts and floods. Our measure of shock includes all these possibilities.

> 65In Table B-17 in the online appendix we examine the compositions of each quantile according to health indicators.

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