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Can a hazardous event be another source of poverty traps ?

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  • Can Askan Mavi

    () (PSE - Paris School of Economics, UP1 - Université Panthéon-Sorbonne)

Abstract

This paper aims to present another explanation for poverty traps, by the presence of hazardous event probability. We show that adaptation and mitigation policies have different effects on the occurrence of poverty traps : the former could cause a poverty trap while the latter could save from the trap since it decreases the abrupt event probability. As a result, we present a new trade-off between adaptation and mitigation policy other than the usual dynamic trade-off highlighted in many studies (Zemel (2015), Tsur and Zemel (2015)), which is crucial for developing countries. Our simulation results show that a trapped economy adopts an aggressive exploitation policy with higher abrupt event risk while the economy at high equilibrium becomes more precautionary. We also show that when the economy faces a higher risk, the ratio between adaptation and mitigation increases.

Suggested Citation

  • Can Askan Mavi, 2017. "Can a hazardous event be another source of poverty traps ?," Working Papers hal-01522087, HAL.
  • Handle: RePEc:hal:wpaper:hal-01522087
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01522087
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    References listed on IDEAS

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    Cited by:

    1. Mavi, Can Askan, 2019. "What can catastrophic events tell us about sustainability?," Journal of Mathematical Economics, Elsevier, vol. 83(C), pages 70-83.

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