Consumption Smoothing and HIV/AIDS: The Case of Two Communities in South Africa

HIV/AIDS threatens to overstretch the already frail informal safety nets in countries heavily affected by the epidemic, potentially making it difficult for households with HIV-positive members to keep up appropriate consumption levels when experiencing shocks. These households may, in addition, face exclusion from informal insurance networks because of widespread stigmatization. Surprisingly, the resilience of informal networks to HIV-related shocks and their uncertain worth for afflicted households in particular have not been empirically tested to date. Using 3 years of a novel panel data set from two poor South African communities experiencing HIV-related illnesses and deaths, we investigate the ability of households to insure their consumption. We find little evidence that affected households show an extra propensity to consume out of income changes, which indicates that these households can rely on informal insurance to the same degree as their nonaffected peers. However, on the basis of the result that affected as well as nonaffected households adjust their expenditures in reaction to income changes, the benchmark hypothesis of full insurance is rejected for both types of households. This result indicates that informal insurance mechanisms are of limited value in the sample, potentially because they have been eroded by repeated stresses brought about by the HIV epidemic. (c) 2010 by The University of Chicago. All rights reserved.