Poverty Traps and the Social Protection Paradox

34 Pages Posted: 10 Oct 2016

See all articles by Munenobu Ikegami

Munenobu Ikegami

Hosei University - Department of Economics

Michael Carter

University of California, Davis

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management

Sarah Janzen

Montana State University - Bozeman

Date Written: October 2016

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.

Suggested Citation

Ikegami, Munenobu and Carter, Michael and Barrett, Christopher B. and Janzen, Sarah, Poverty Traps and the Social Protection Paradox (October 2016). NBER Working Paper No. w22714. Available at SSRN: https://ssrn.com/abstract=2850249

Munenobu Ikegami (Contact Author)

Hosei University - Department of Economics ( email )

Tokyo
Japan

Michael Carter

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management ( email )

315 Warren Hall
Ithaca, NY 14853-7801
United States
607-255-4489 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://aem.cornell.edu/faculty_sites/cbb2/

Sarah Janzen

Montana State University - Bozeman ( email )

Bozeman, MT 59717-2920
United States

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