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Heterogeneous wealth dynamics: On the roles of risk and ability

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  • Paulo Santos
  • Christopher B. Barrett

Abstract

This paper studies the causal mechanisms behind persistent poverty. Using original data on Boran pastoralists of southern Ethiopia, we find that heterogeneous and nonlinear wealth dynamics arise purely in adverse states of nature. In favorable states, expected herd grow is quasi-linear and universal. We further show that those with lower herding ability, as reflected in past herd growth data, converge to a unique equilibrium at a small herd size while those with higher ability exhibit multiple stable dynamic wealth equilibria.

Suggested Citation

  • Paulo Santos & Christopher B. Barrett, 2016. "Heterogeneous wealth dynamics: On the roles of risk and ability," Monash Economics Working Papers 36-16, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2016-36
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    References listed on IDEAS

    as
    1. Christopher B. Barrett & Teevrat Garg & Linden McBride, 2016. "Well-Being Dynamics and Poverty Traps," Annual Review of Resource Economics, Annual Reviews, vol. 8(1), pages 303-327, October.
    2. Michael Carter & Christopher Barrett, 2006. "The economics of poverty traps and persistent poverty: An asset-based approach," Journal of Development Studies, Taylor & Francis Journals, vol. 42(2), pages 178-199.
    3. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    4. Russell Toth, 2015. "Traps and Thresholds in Pastoralist Mobility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 315-332.
    5. Rosenzweig, Mark R & Binswanger, Hans P, 1993. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Economic Journal, Royal Economic Society, vol. 103(416), pages 56-78, January.
    6. Travis J. Lybbert & Christopher B. Barrett & Solomon Desta & D. Layne Coppock, 2004. "Stochastic wealth dynamics and risk management among a poor population," Economic Journal, Royal Economic Society, vol. 114(498), pages 750-777, October.
    7. Delavande, Adeline & Giné, Xavier & McKenzie, David, 2011. "Measuring subjective expectations in developing countries: A critical review and new evidence," Journal of Development Economics, Elsevier, vol. 94(2), pages 151-163, March.
    8. Santos, Paulo & Barrett, Christopher B., 2011. "Persistent poverty and informal credit," Journal of Development Economics, Elsevier, vol. 96(2), pages 337-347, November.
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    Cited by:

    1. repec:oup:revage:v:29:y:2007:i:3:p:412-418. is not listed on IDEAS
    2. Chantarat, Sommarat & Mude, Andrew G. & Barrett, Christopher B. & Turvey, Calum G., 2017. "Welfare Impacts of Index Insurance in the Presence of a Poverty Trap," World Development, Elsevier, vol. 94(C), pages 119-138.
    3. Russell Toth, 2015. "Traps and Thresholds in Pastoralist Mobility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 315-332.
    4. Adeline Delavande & Hans-Peter Kohler, 2009. "Subjective expectations in the context of HIV/AIDS in Malawi," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 20(31), pages 817-875, June.
    5. Travis J. Lybbert & Christopher B. Barrett, 2011. "Risk‐Taking Behavior In The Presence Of Nonconvex Asset Dynamics," Economic Inquiry, Western Economic Association International, vol. 49(4), pages 982-988, October.
    6. Travis J. Lybbert & Christopher B. Barrett, 2007. "Risk Responses to Dynamic Asset Thresholds," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 29(3), pages 412-418.
    7. Jensen, Nathaniel D. & Barrett, Christopher B. & Mude, Andrew G., 2014. "Basis Risk and the Welfare Gains from Index Insurance: Evidence from Northern Kenya," MPRA Paper 59153, University Library of Munich, Germany.
    8. Santos, Paulo & Barrett, Christopher B., 2006. "Informal Insurance in the Presence of Poverty Traps: Evidence from Southern Ethiopia," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25487, International Association of Agricultural Economists.

    More about this item

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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