Social Protection in the Face of Climate Change: Targeting Principles and Financing Mechanisms

Abstract

Climate risk is an important driver of long-term poverty dynamics, especially in rural regions. This paper builds a dynamic, multi-generation household model of consumption, accumulation, and risk management to draw out the full consequences of exposure to climate risk. The model incorporates the long-term impacts of consumption shortfalls, induced by the optimal ?asset smoothing? coping behavior of the vulnerable, on the human capital and long-term wellbeing of families. The analysis shows that the long-term level and depth of poverty can be improved by incorporating elements of ?vulnerability-targeted social protection? into a conventional system of social protection. The paper also explores the degree to which vulnerability-targeted social protection can be implemented through a subsidized insurance mechanism. The analysis shows that insurance-based vulnerability-targeted social protection dominates (in economic growth and poverty reduction measures) both in-kind transfer mechanisms and vulnerability-targeted protection paid for using a public budget. The relative gains brought about by this scheme of insurance-augmented social protection increase?at least for a while?under climate change scenarios. However, if climate change becomes too severe, then even this novel form of social protection loses its ability to stabilize the extent and depth of poverty.

Keywords: Economics and Institutions, Climate Change and Health, Climate Change and Environment, Science of Climate Change, Economic Conditions and Volatility, Public Sector Management and Reform, Non Governmental Organizations, Inequality, Social Protections & Assistance