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Measuring the Impact of Vulnerability on the Number of Poor: A New Methodology with Empirical Illustrations

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  • Chakravarty, Satya R.

    (Asian Development Bank Institute)

  • Chattopadhyay, Nachiketa

    (Asian Development Bank Institute)

  • Silber, Jacques

    (Asian Development Bank Institute)

  • Wan, Guanghua

    (Asian Development Bank Institute)

Abstract

Given a poverty line, a person who is non-poor (poor) currently may not be treated as non-poor (poor) in a vulnerable situation. The poverty line is adjusted in the presence of vulnerability such that the utility of a person at the current poverty line and that at the adjusted poverty line become identical. Using an additive model of vulnerability, it is shown that if the utility function obeys constant Arrow-Pratt absolute risk aversion, then the harmonized poverty line is a simple absolute augmentation of the current poverty line. On the other hand, under a multiplicative model of vulnerability with constant Arrow-Pratt relative risk aversion, the revised poverty line is a simple relative augmentation of the current poverty line. Empirical illustrations assume that constant relative risk aversion applies to Asia and the Pacific. Upward adjustment of the poverty line under increased vulnerability, as captured through the value of the risk aversion parameter, is also observed.

Suggested Citation

  • Chakravarty, Satya R. & Chattopadhyay, Nachiketa & Silber, Jacques & Wan, Guanghua, 2016. "Measuring the Impact of Vulnerability on the Number of Poor: A New Methodology with Empirical Illustrations," ADBI Working Papers 612, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0612
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    References listed on IDEAS

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    More about this item

    Keywords

    Poverty; vulnerability; poverty line; Arrow-Pratt risk aversion;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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