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Estimating Vulnerability

  • Chris Elbers

    (Free University Amsterdam)

  • Jan Willem Gunning

    (Free University Amsterdam)

Many existing measures of vulnerability lack a theoretical basis. In this paper we propose to measure vulnerability rigorously as the welfare of a household which solves an intertemporal optimisation model under risk.In such models, in essence a stochastic version of the Ramsey model, an important part of chronic poverty may be caused by the ex ante response of households to risks. Our simulation results indicate that whether or not a household is to be classified as vulnerable depends strongly on the time horizon considered. We use the model to assess the accuracy of existing regression-based vulnerability measures. We find that these methods can be vastly improved by including asset measures in the regression.

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File URL: http://128.118.178.162/eps/dev/papers/0408/0408015.pdf
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Paper provided by EconWPA in its series Development and Comp Systems with number 0408015.

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Date of creation: 13 Aug 2004
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Handle: RePEc:wpa:wuwpdc:0408015
Note: Type of Document - pdf
Contact details of provider: Web page: http://128.118.178.162

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