Stochastic Wealth Dynamics and Risk Management Among a Poor Population

28 Pages Posted: 9 Oct 2004

See all articles by Travis J. Lybbert

Travis J. Lybbert

University of California, Davis - Department of Agricultural and Resource Economics

Christopher B. Barrett

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

Solomon Desta

Utah State University - College of Natural Resources

D. Layne Coppock

Utah State University - College of Natural Resources

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Abstract

We use herd history data collected among pastoralists in southern Ethiopia to study stochastic wealth dynamics among a poor population. Although covariate rainfall shocks plainly matter, household-specific factors, including own herd size, account for most observed variability in wealth dynamics. We find no support for the tragedy of the commons hypothesis. Past studies may have conflated costly self-insurance with stocking rate externalities. Biophysical shocks move households between multiple dynamic wealth equilibria - the lowest suggesting a poverty trap - according to nonconvex path dynamics. These findings have broad implications for development and relief strategies among a poor population vulnerable to climatic shocks.

Suggested Citation

Lybbert, Travis J. and Barrett, Christopher B. and Desta, Solomon and Coppock, D. Layne, Stochastic Wealth Dynamics and Risk Management Among a Poor Population. Available at SSRN: https://ssrn.com/abstract=597851

Travis J. Lybbert (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

One Shields Avenue
Davis, CA 95616
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Christopher B. Barrett

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

315 Warren Hall
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United States
607-255-4489 (Phone)
607-255-9984 (Fax)

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

Solomon Desta

Utah State University - College of Natural Resources ( email )

Logan, UT 84322-5230
United States
435-797-3095 (Phone)
435-797-3796 (Fax)

D. Layne Coppock

Utah State University - College of Natural Resources ( email )

Logan, UT 84322-5230
United States
435-797-1262 (Phone)
435-797-3796 (Fax)

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