Vulnerability in a Stochastic Dynamic Model

Tinbergen Institute Discussion Paper No. 2003-070/2

30 Pages Posted: 9 Oct 2003

See all articles by Chris Elbers

Chris Elbers

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: September 2003

Abstract

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.

Keywords: vulnerability, expected poverty, risk, Ramsey model, consumption regressions

JEL Classification: D12, D60, D91, O12

Suggested Citation

Elbers, Chris and Gunning, Jan Willem, Vulnerability in a Stochastic Dynamic Model (September 2003). Tinbergen Institute Discussion Paper No. 2003-070/2. Available at SSRN: https://ssrn.com/abstract=446405 or http://dx.doi.org/10.2139/ssrn.446405

Chris Elbers (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+ 310 20 444 6141 (Phone)
+ 310 20 444 6004 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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