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Poverty Traps and the Social Protection Paradox

In: The Economics of Poverty Traps

Author

Listed:
  • Munenobu Ikegami
  • Michael R. Carter
  • Christopher B. Barrett
  • Sarah Janzen

Abstract

Progressively targeted cash transfers remain the dominant policy response to chronic poverty in developing countries. But are there alternative social protection policies that might have larger poverty impacts over time for the same public expenditure? To explore this question, this paper develops a dynamic stochastic model of of consumption and asset accumulation by households that confront a non-convex production technology and face missing financial markets. The model demonstrates that a hybrid social protection policy, which devotes resources to funding “state of the world contingent transfers” (SWCTs) to vulnerable, but non-poor households in the wake of negative shocks, can result in lower rates of poverty in the medium term than does a conventional cash transfer policy. We also explore the prospects for using subsidized index insurance as a way to implement SWCTs and find that an insurance-based hybrid policy can result in lower total public expenditures than a conventional cash transfer social protection program.
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Suggested Citation

  • Munenobu Ikegami & Michael R. Carter & Christopher B. Barrett & Sarah Janzen, 2017. "Poverty Traps and the Social Protection Paradox," NBER Chapters,in: The Economics of Poverty Traps National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:13834
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    1. repec:pal:gpprii:v:42:y:2017:i:4:d:10.1057_s41288-017-0060-5 is not listed on IDEAS

    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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