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Lower Partial Moments as a measure of vulnerability to poverty in Cameroon

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  • Witt, Rudolf
  • Waibel, Hermann

Abstract

In this paper the class of Lower Partial Moments (LPMs) is used for measuring vulnerability as downside risk of household income in rural Cameroon. This class of established and coherent risk measures has been shown to meet a number of desirable properties. Among others, the LPMs fulfill the focus axiom, and for order greater than zero they are in harmony with expected utility theory under the weak assumption of risk aversion. Through combining the vulnerability measure with a portfolio approach it is possible to distinguish different livelihood systems for which the poverty and vulnerability measures are the explicit result of stochastic distributions of single activities in the households' portfolio and their covariance structure. In particular we consider the four major income generating activities in the study area: Sorghum, millet and rice production, and fishing. The results suggest that in the study area fishermen are less affected by adverse effects on income than other livelihood systems, while rice growers are the poorest and most vulnerable. It is also shown that rice and millet growers are suffering from chronic poverty, while transient poverty is more prevalent among the group of sorghum growers and fishermen. This implication is further confirmed by assuming a moving target equal to the mean portfolio income for the calculation of LPMs. The results of the scenario analysis suggest that policy interventions aiming at a reduction of the covariation structure between income flows from different activities are quite promising.

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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-434.

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Length: 23 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:han:dpaper:dp-434

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Keywords: Vulnerability as expected poverty; Lower Partial Moments; portfolio theory; diversification; Sub Saharan Africa;

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  1. Ligon, Ethan & Schechter, Laura, 2002. "Measuring Vulnerability," 2002 Annual meeting, July 28-31, Long Beach, CA 19899, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Kurukulasuriya, Pradeep & Mendelsohn, Robert, 2007. "A ricardian analysis of the impact of climate change on African cropland," Policy Research Working Paper Series 4305, The World Bank.
  3. Carsky, R. J. & Ndikawa, R. & Singh, L. & Rao, M. R., 1995. "Response of dry season sorghum to supplemental irrigation and fertilizer N and P on Vertisols in northern Cameroon," Agricultural Water Management, Elsevier, vol. 28(1), pages 1-8, August.
  4. Carlo Acerbi & Claudio Nordio & Carlo Sirtori, 2001. "Expected Shortfall as a Tool for Financial Risk Management," Papers cond-mat/0102304, arXiv.org.
  5. Bruce A. McCarl & Xavier Villavicencio & Ximing Wu, 2008. "Climate Change and Future Analysis: Is Stationarity Dying?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(5), pages 1241-1247.
  6. Günther, Isabel & Harttgen, Kenneth, 2009. "Estimating Households Vulnerability to Idiosyncratic and Covariate Shocks: A Novel Method Applied in Madagascar," World Development, Elsevier, vol. 37(7), pages 1222-1234, July.
  7. Robert Jarrow & Feng Zhao, 2006. "Downside Loss Aversion and Portfolio Management," Management Science, INFORMS, vol. 52(4), pages 558-566, April.
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