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Poverty, Vulnerability, and Reference Dependent Utility

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  • Günther, Isabel
  • Maier, Johannes

Abstract

In this paper we argue that the recent evidence on individuals´ decision making is of high relevance for the measurement of poverty when switching from a static and certain to a dynamic and uncertain framework. The numerous proposed measures of multi-period poverty and vulnerability have until now not taken into account the insights from behavioural economics. Building on reference dependent utility models we propose a new measure of both (perceived) multi-period poverty and vulnerability, where the poverty status of an individual is not only a function of (expected) consumption levels but also of (expected) losses and gains in consumption. We demonstrate the implications of the proposed measures with a small illustrative example.

Suggested Citation

  • Günther, Isabel & Maier, Johannes, 2013. "Poverty, Vulnerability, and Reference Dependent Utility," WIDER Working Paper Series 140, World Institute for Development Economic Research (UNU-WIDER).
  • Handle: RePEc:unu:wpaper:wp2013-140
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    References listed on IDEAS

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    Cited by:

    1. Hill, Ruth Vargas & Porter, Catherine, 2017. "Vulnerability to Drought and Food Price Shocks: Evidence from Ethiopia," World Development, Elsevier, vol. 96(C), pages 65-77.
    2. Hai‐Anh H. Dang & Peter F. Lanjouw, 2017. "Welfare Dynamics Measurement: Two Definitions of a Vulnerability Line and Their Empirical Application," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(4), pages 633-660, December.
    3. Pham, Huong Dien, 2017. "Do cultural factors alter the relationship between risk attitudes and economic welfare?," TVSEP Working Papers wp-003, Leibniz Universitaet Hannover, Institute of Development and Agricultural Economics, Project TVSEP.
    4. Park, Hyeon, 2019. "Inter-temporal choices with temporal reference dependence," Research in Economics, Elsevier, vol. 73(1), pages 107-122.

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