Households' vulnerability and responses to shocks: evidence from rural Kenya

<b>Key words</b>: Vulnerability, HIV/AIDS, weather shocks, risk management, coping strategies, rural households, gender. &nbsp; Empirical investigation on household’s responses to sources of vulnerability is important for designing and implementation of social policies. The design of an effective redistribution policy needs to take into consideration existing household and community systems, so as to build on the existing strengths without displacing households’ efforts. It is in this context that the current study investigates how farm households in rural Kenya respond to stressful events and the implications of the household’s risk management strategies on their welfare. The study examines two major sources of vulnerability for rural livelihoods: weather and HIV/AIDS. The importance of weather and HIV/AIDS lies in their impact on the most basic human need—food security. Weather uncertainties beget hunger. Hunger begets disease. When health-care provision is inadequate, hunger may interact with health problems to breed nutrition insecurity and therefore, more ill-health. For poor households, health problems present even a bigger threat to their livelihoods as their asset portfolio is highly skilled towards labour power. While many studies have focused on the extent to which households maintain stable consumption levels under stressful conditions, much less research is on the mechanisms by which consumption is smoothed. Using a framework that represents the interaction of a household’s portfolio with risk, this thesis explores both ex ante and ex post mechanisms for dealing with shocks and their accessibility to both male and females within a household. Ex post mechanisms include reliance on collective opportunities such as informal loans and gifts, while individual opportunities include asset and labour sales. While the results show that reciprocal transfers and labour markets are likely to play an important role in consumption smoothing, the effects of HIV/AIDS are similar to a common rainfall shock which is difficult to insure. The results show liquidity constraints to hamper the use of adult labour especially males’ as a consumption smoothing device. The ex ante mechanisms often involves building buffers. Buffer stocking often means sacrificing current consumption to secure future consumption. The sacrifice can be in form of holding less risky but low yielding assets or can mean securing consumption for some members of the households at the expense of those with less bargaining power. The study finds that households buffer stock in health and that a more uncertain future is associated with more liquid assets. The finding illustrates the existence of a link between risk, poverty and inequality. Demonstrating empirically the effect of risk and possible risk-coping strategies on inequality and poverty is a central challenge in the development literature. This thesis contributes to this literature and provides evidence at the intra-household level.