Poverty Traps and Social Protection

Poverty Traps and Climate Risk: Limitations and Opportunities of Index-Based Risk Financing

“…This has the effect of increasing the well-being of everyone not in the basin of attraction around the catastrophic equilibrium 0 and, most dramatically, of switching onto a positive accumulation trajectory those people who were previously just below B but now lie just above it in asset space. Barrett, Carter and Ikegami (2007) explain and demonstrate how reduced risk exposure (both ex post but especially ex ante) fundamentally changes the shape of such wealth dynamics. If IBRTPs can be developed so that the poor have greater access to insurance-type products when there is a climate shock, they may be more willing to invest in new technologies and move to a portfolio mix that has higher risk but higher returns.…”

“…Risk also tends to discourage both adoption of improved technologies (Feder, Just andZilberman 1985, Marra, Pannell andAbadi Ghadim 2003) and the short-term sacrifices necessary for longer-term investment in productive capital accumulation (Barrett, Carter and Ikegami 2007). The resulting foregone gains can be considerable.…”

“…Poverty traps at higher levels of aggregation necessarily constrain economic opportunities at lower levels of aggregation and thus, accentuate poverty traps at the household level (Carter and Barrett 2006;Mehlum, Moene, and Torvik 2005). For example, governments that cannot easily finance safety nets to respond to major climate shocks shift households' accumulation patterns (Barrett, Carter and Ikegami 2007), limiting the tax base from which the state can raise funds. Finding solutions to covariate climate risk for individuals but also for larger-scale institutions (firms, NGOs, governments) is thus central to strategies to liberate people from poverty traps.…”

“…Now the objective is to block downward movements past threshold B, i.e., to protect the assets and well-being of the vulnerable, many of whom will currently be non-poor. Type III IBRTPs represent what Barrett, Carter and Ikegami (2007) term "productive safety nets", i.e., instruments for safeguarding past investments of those who at some point cinch up their belts and forego current consumption to invest in building up productive assets or to adopt improved technologies for use tomorrow. By protecting the assets of individuals who are able to surmount threshold B-whether by good fortune (e.g., birth into a wealthy family or lottery winnings) or by cumulative past sacrifice-Type III tools help stem the undesirable entry of new people into the ranks of the chronically poor.…”

Insuring Against Drought‐Related Livestock Mortality: Piloting Index Based Livestock Insurance in Northern Kenya

“…Poverty traps manifest in the form of a dynamic herdsize threshold above which herds accumulate to a high-level equilibrium and below which herd sizes naturally diminish to a low-level equilibrium below the poverty line. For those with herd sizes slightly above this threshold, protecting them against losses that will naturally lead them toward chronic poverty is an important priority that IBLI could theoretically fill (Barrett et al, 2008;Chantarat et al, 2009b).…”