Poverty Traps and the Social Protection Paradox

Abstract

Progressively targeted cash transfers remain the dominant policy response to chronic poverty in developing countries. But are there alternative social protection policies that might have larger poverty impacts over time for the same public expenditure? To explore this question, this paper develops a dynamic stochastic model of of consumption and asset accumulation by households that confront a non-convex production technology and face missing financial markets. The model demonstrates that a hybrid social protection policy, which devotes resources to funding "state of the world contingent transfers" (SWCTs) to vulnerable, but non-poor households in the wake of negative shocks, can result in lower rates of poverty in the medium term than does a conventional cash transfer policy. We also explore the prospects for using subsidized index insurance as a way to implement SWCTs and find that an insurance-based hybrid policy can result in lower total public expenditures than a conventional cash transfer social protection program.

After the Drought: The Impact of Microinsurance on Consumption Smoothing and Asset Protection

“…Consistent with the theoretical analysis of Ikegami et al (2016) and Carter and Janzen (2015), we anticipate a conservative asset smoothing strategy as households approach this tipping point. However, given the severity of risk in the system (where single drought events can destroy upwards of 40% of household livestock assets), Ikegami et al (2016) and Carter and Janzen (2015) for less wealthy households. Impacts for both groups are statistically significant, although a z-test for a difference in coefficients above and below the threshold value is marginally insignificant.…”

“…However, as seen clearly in Figure 4.2b, the available data do not pin down sharply livestock sales threshold, signalling that some unobserved heterogeneity is at work. The theoretical analyses of Ikegami et al (2016) and Carter and Janzen (2015) hypothesize that skill differentials are a potentially important source of such heterogeneity indicating that high skill, lower asset households may be more reluctant to sell assets than their lesser skilled counterparts.…”

The Analysis of Russian Population Incomes for 2012-2015

“…Programs like SNAP (food stamps), the EITC and CTC, and Medicaid support millions of low-income working families and help to promote work [12]. But «conventional cash transfer programs thus implicitly make an intertemporal tradeoff between the wellbeing of the poor today versus their well-being in the future» [13].…”

A policy framework for social sustainability: Social cohesion, equity and safety

“…The third policy issue concerns the safety of a population, that is, protecting a population against economic shocks. Social protection can have a significant effect on the living conditions of a population and help members of this population avoid falling into the poverty trap (Barrett, Carter, Ikegami, & Janzen, 2016). Poverty is often conceived as a contributing factor to the destruction of the environment (Dasgupta et al, 2003;Jehan & Umana, 2003), and therefore fighting poverty through social protection policies is a contributing factor to the preservation of the environment.…”