The relationship between ex-ante actions and ex-post responses is more delicate. Some of ex-post responses such as private transfers (e.g., remittances and borrowing) are already incorporated in the decision making on ex-ante actions. For example, educated labor in the household can migrate to urban sectors to remit money to the household. Holding livestock enables them to get cash income by selling some of the livestock and/or using them as collateral. What is more exogenous to agents is the availability and accessibility of public assistance. Even if such ex-post assistance is available in the economy, its targeting efficiency critically matters in determining how likely the affected areas and agents therein receive aid (see, e.g., Coady, Grosh and Hoddinott, 2004; Quisumbing, 2005a, 2005b). If such public actions are fast enough, they can create substitution between private actions (as a function of ex-ante actions) and public responses. Owens and Hoddinott (2003) investigated the trade-off between the ex-ante interventions that increase capital accumulation and ex-post assistance. They showed that (i) intensive agricultural extension services and the accumulation of trained oxen mitigated the reduction of net crop income during a drought, and (ii) private and public transfers are substitutable. In the empirical analysis, we use actual data on public assistance to investigate how likely these aids affect the role of ex-ante actions in human capital formation.

In this paper, we examine the impacts of flood and drought on child human capital formation using data from Bangladesh, Ethiopia and Malawi. The empirical analysis uses schooling investment measured by grade progression (change in grades) to examine the above issue. As Ferreira and Schady (2008) summarizes, aggregate shocks such as economic recession can have two offsetting effects on schooling investments: a negative income effect and a positive substitution (time allocation) effect.<sup>6</sup> Large income losses may encourage a shift of resources from investments in child schooling to consumption smoothing. But if the opportunity cost for schooling investment (i.e., child wage) decreases, this creates an incentive to keep children in school. In theory, therefore, disaster impacts on schooling investment could be ambiguous. The empirical strategy adopted in this paper controls for area fixed effects, in order to account for labor-market effects uniformly affecting households in each area.<sup>7</sup> Furthermore, since our interest is to know the roles of ex-ante and ex-post actions that affect disaster impacts on human capital formation, we do not think that the above issue is a problem.

The paper is organized as follows. The next section describes a simple model that concisely summarizes our hypotheses on sequential decision making. The importance of ex-ante actions depends on the risk of future natural hazards (disasters) and the likelihood of public assistance. Section 3 discusses econometric framework, and Section 4 describes our data.

The empirical results, summarized in Section 5, show that the likelihood of holding more human capital and/or livestock relative to land is positively associated with the future disaster probability. Interestingly, this asset-portfolio effect is significant in disaster prone areas. Our results support the roles of both ex-ante and ex-post responses (public assistance) to disasters but also show interesting variations across countries. In Ethiopia, public assistance plays a more important role than ex-ante actions to mitigate the shocks on child schooling. In contrast, Malawi relies on private ex-ante actions, with public aid being largely insignificant. The Bangladesh example

> 6For example, Jacoby and Skoufias (1997) showed from ICRISAT India data the contrast between the two effects.

> 7With village fixed effects, we may underestimate the impacts of natural disasters, especially drought.

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