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Vulnerability in a Stochastic Dynamic Model


  • Chris Elbers

    (Free University Amsterdam)

  • Jan Willem Gunning

    (Free University Amsterdam)


Most measures of vulnerability are a-theoretic and essentially static. In this paper we use a stochastic Ramsey model to find a household's optimal welfare and we measure vulnerability as the shortfall from the welfare attained if the household consumed permanently at the poverty line. The results indicate that vulnerability is very sensitive to the time horizon considered. We find that the accuracy of existing regression-based vulnerability measures can be greatly improved by including asset measures in the regression.

Suggested Citation

  • Chris Elbers & Jan Willem Gunning, 2004. "Vulnerability in a Stochastic Dynamic Model," Development and Comp Systems 0409003, EconWPA.
  • Handle: RePEc:wpa:wuwpdc:0409003
    Note: Type of Document - pdf; pages: 30

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    Cited by:

    1. Kishtany, Naill & Alemayehu, Seyoum Taffesse, 2009. "Achieving The MDGs – a Note," Ethiopian Journal of Economics, Ethiopian Economics Association, vol. 18(1).
    2. Alessandro Federici & Pierluigi Montalbano, 2012. "Macroeconomic volatility, consumption behaviour and welfare: A cross-country analysis," Working Paper Series 3612, Department of Economics, University of Sussex.
    3. Md. Shafiul Azam & Katsushi S. Imai, 2012. "Measuring Households' Vulnerability to Idiosyncratic and Covariate Shocks – the case of Bangladesh," Discussion Paper Series DP2012-02, Research Institute for Economics & Business Administration, Kobe University.
    4. Tomoki Fujii, 2016. "Concepts and measurement of vulnerability to poverty and other issues: a review of literature," Chapters,in: The Asian ‘Poverty Miracle’, chapter 3, pages 53-83 Edward Elgar Publishing.
    5. Satya R. Chakravarty & Nachiketa Chattopadhyay & Jacques Silber & Guanghua Wan, 2016. "Measuring the impact of vulnerability on the number of poor: a new methodology with empirical illustrations," Chapters,in: The Asian ‘Poverty Miracle’, chapter 4, pages 84-117 Edward Elgar Publishing.

    More about this item


    vulnerability; expected poverty; risk; Ramsey model; consumption regressions;

    JEL classification:

    • O - Economic Development, Innovation, Technological Change, and Growth
    • P - Economic Systems

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