persistent poverty and informal credit abstract this paper explores the consequences of nonlinear wealth dynamics for the formation of bilateral credit arrangements to help manage idiosyncratic risk using original data on expected wealth dynamics social networks and informal loans among southern ethiopian pastoralist households we find that the threshold at which expected wealth dynamics bifurcate serves as a focal point at which lending is concentrated informal lending responds to recipients losses but only so long as the recipients are not too poor our results suggest that when shocks can have long term effects loans are best understood as providing a safety net rather than a scale neutral insurance mechanism furthermore the persistently poor are excluded from social networks that are necessary to obtain loans given in response to shocks

the economics of poverty traps and persistent poverty an asset based approach abstract longitudinal data on household living standards open the way to a deeper analysis of the nature and extent of poverty while a number of studies have exploited this type of data to distinguish transitory from more chronic forms of income or expenditure poverty this paper develops an asset based approach to poverty analysis that makes it possible to distinguish deep rooted persistent structural poverty from poverty that passes naturally with time due to systemic growth processes drawing on the economic theory of poverty traps and bifurcated accumulation strategies this paper briefly discusses some feasible estimation strategies for empirically identifying poverty traps and long term persistent structural poverty as well as relevant extensions of the popular foster greer thorbecke class of poverty measures the paper closes with reflections on how asset based poverty can be used to underwrite the design of persistent poverty reduction strategies

rainfall shocks and within community wealth inequality evidence from rural ethiopia summary household level impacts of environmental shocks are often negative but may vary considerably due to heterogeneous vulnerability this paper considers how differential vulnerability among households affects inequality within rural communities in ethiopia this study makes novel use of the demographic and health surveys dhs and a nasa agro climatology dataset results show that rainfall deficits have an equalizing effect on within community livestock inequality in parts of ethiopia but regional differences are observed a non significant effect is observed with respect to asset inequality as an initial study on this topic this paper outlines an agenda for future data collection and analysis efforts

welfare dynamics in rural kenya and madagascar this paper presents comparative qualitative and quantitative evidence from rural kenya and madagascar in an attempt to untangle the causality behind persistent poverty we find striking differences in welfare dynamics depending on whether one uses total income including stochastic terms and inevitable measurement error or the predictable structural component of income based on a household s asset holdings our results suggest the existence of multiple dynamic asset and structural income equilibria consistent with the poverty traps hypothesis furthermore we find supporting evidence of locally increasing returns to assets and of risk management behaviour consistent with poor households defence of a critical asset threshold through asset smoothing

state conditional fertilizer yield response on western kenyan farms 15 16 17 we acknowledge with gratitude support from the rockefeller foundation the united states agency for 18 international development usaid leadership enhancement in agriculture program leap and the 19 coupled natural and human systems program of the biocomplexity initiative of the national science 20 foundation through grant bcs 0215890 the world agroforestry center icraf graciously hosted 21 the lead author for part of the research and provided soil test results we are also grateful to james

the economics of poverty traps and persistent poverty empirical and policy implications the moral and economic imperatives to intervene in poverty traps motivate the identification of poverty traps and their structural causes so as to inform the design of appropriate policy responses however empirical identification remains challenging because of poverty traps complexity after reviewing mechanisms that can generate poverty traps we focus on one multiple financial market failures emphasising its heretofore underappreciated testable implications including specific behaviours that are rational only in the presence of a poverty trap we therefore recommend tests for these behaviours rather than more econometrically challenged efforts to directly test for poverty traps in estimated asset dynamics

consumption versus asset smoothing testing the implications of poverty trap theory in burkina faso abstract despite solid theoretical foundations for the notion that poor borrowing constrained households will intertemporally manage assets to smooth consumption the consumption smoothing hypothesis has not always withstood empirical scrutiny this paper reassesses the intertemporal asset management problem with a poverty trap model and shows that we would expect to see asset smoothing not consumption smoothing in the neighborhood of critical asset levels at which optimal accumulation behavior bifurcates we then employ threshold estimation techniques to empirically confirm the co existence of consumption and asset smoothing regimes using a household panel data set from west africa households above the estimated threshold almost completely insulate their consumption from weather shocks whereas those below the threshold do not these results not only indirectly provide evidence of the existence of poverty traps but also speak to the level and incidence of the costs of uninsured risk

asset smoothing consumption smoothing and the reproduction of inequality under risk and subsistence constraints abstract a growing literature asks whether low wealth agents can accumulate assets over time or whether they are trapped in poverty this paper develops a stochastic dynamic programming model with endogenous asset price risk to explore savings and portfolio decisions in a resource poor environment characterized by risk and subsistence constraints optimal portfolio strategies are found to bifurcate despite divisible assets and fully rational agents wealthier agents acquire a higher yielding portfolio and pursue conventional consumption smoothing poorer agents acquire a less remunerative portfolio and pursue asset smoothing rather than consumption smoothing asset based risk coping thus results in positive correlation between initial wealth and portfolio rate of return

soil quality and fertilizer use rates among smallholder farmers in western kenya studies of fertilizer use in sub saharan africa have been dominated by analyses of economic and market factors having to do with infrastructure institutions and incentives that prevent or foster increased fertilizer demand largely ignoring how soil fertility status conditions farmer demand for fertilizer we apply a switching regression model to data from 260 farm households in western kenya in order to allow for the possibility of discontinuities in fertilizer demand based on a soil carbon content scc threshold we find that the usual factors reflecting liquidity and quasi fixed inputs are important on high scc plots but not on those with poorer soils external inputs become less effective on soils with low scc hence the discernible shift in behaviors across soil quality regimes for many farmers improved fertilizer market conditions alone may be insufficient to stimulate increased fertilizer use without complementary improvements in the biophysical conditions that affect conditional factor demand

poverty traps and nonlinear income dynamics with measurement error and individual heterogeneity theories of poverty traps stand in sharp contrast to the view that anybody can make it through hard work and thrift however empirical detection of poverty traps is complicated by the lack of long panels measurement error and attrition this paper shows how dynamic pseudo panel methods can overcome these difficulties allowing estimation of non linear income dynamics and testing for the presence of poverty traps the paper explicitly allows for individual heterogeneity in income dynamics to account for the possibility that particular groups of individuals may face traps even if the average individual does not these methods are used to examine the evidence for a poverty trap in labor earnings income and expenditure in mexico and are compared to panel data estimates from a short rotating panel the results do find evidence of nonlinearities in household income dynamics and demonstrate large bias in the panel data estimates nevertheless even after allowing for heterogeneity and accounting for measurement error the paper finds no evidence of the existence of a poverty trap for any group in the sample

identifying the hand of past distinguishing state dependence from heterogeneity a basic problem in social science is to ascertain the importance of initial endowments on subsequent outcomes of a dynamic process interest in this topic centers on two distinct issues a do initial endowments have a temporally persistent effect on outcomes i e is there heterogeneity b are the effects of initial endowments attenuated or accentuated by subsequent experiences of the process being studied or by related processes i e is there state dependence these two questions show up in a variety of contexts 1 the importance of family background on a person s subsequent education and earnings is a hotly debated topic do market or nonmarket mechanisms reinforce or diminish initial endowments 2 the incidence of criminal activity is concentrated among a small population of repeated offenders are certain persons prone to criminality or does crime breed crime 3 are persons who experience unemployment more likely to experience future unemployment due to loss of work experience or market stigma 4 does early entry into an industry confer an advantage of incumbency or does it merely proxy the basic managerial and innovative ability of early entrants many formal models of state dependent processes or processes with persistent effects of initial conditions have been formulated invariance of steady states to initial endowments was viewed as a desirable feature of an economic model in the 1960 s and 1970 s path dependent synergism and nonergodicity are fashionable features of models today is the choice between models with long run dependence on initial conditions and those without solely a matter of intellectual esthetics can data discriminate between these two classes of models how many economically extraneous statistical regularity conditions have to be imposed in order to distinguish between these models how many and what kind of maintained assumptions are required in order to let the data speak on these important questions in this paper i focus on one nonergodic model that receives much attention in the literature the model of duration dependence and heterogeneity discussed by herbert silcock 1954 and also examined by tony lancaster 1979 chris elbers and geert ridder 1982 myself and burton singer 1984 and myself and bo honore 1989

inequality as a determinant of malnutrition and unemployment policy this paper explores the policy implications that are obtained once it is recognized that at low nutrition intakes a person s productivity is an increasing function of intake in the context of a fully general equilibrium model it is shown that if aggregate assets in an economy are neither large nor small certain patterns of lorenz improving asset redistributions or nutrition transfers increase aggregate output and reduce the volume of involuntary unemployment and the incidence of undernourishment copyright 1987 by royal economic society

wealth risk and activity choice cattle in western tanzania abstract imperfect credit markets force households to use their savings for investment profitable activities often require lumpy investments limiting entry by poorer households resulting in increasing welfare differences in tanzania cattle are a profitable but lumpy investment and a liquid asset for consumption smoothing richer households own substantial cattle herds while poorer households specialize in low return low risk activities a dynamic programming model and simulations are presented to analyze entry into asset accumulation under income risk the evidence suggests that households with lower endowments are less likely to own cattle and returns to their endowments are lower

exploring poverty traps and social exclusion in south africa using qualitative and quantitative data abstract recent theoretical work hypothesises that a polarised society like south africa will suffer a legacy of ineffective social capital and blocked pathways of upward mobility that leaves large numbers of people trapped in poverty to explore these ideas this paper employs a mix of quantitative and qualitative methods novel econometric analysis of asset dynamics over the 1993 98 period identifies a dynamic asset poverty threshold that signals that large numbers of south africans are indeed trapped without a pathway out of poverty qualitative analysis of this period and the period 1998 2001 more deeply examines patterns of mobility and confirms the continuation of this pattern of limited upward mobility and a low level poverty trap in addition the qualitative data permit a closer look at the specific role played by social relationships while finding ample evidence of active social capital and networks these are more helpful for non poor households for the poor social capital at best helps sta

one kind of freedom poverty dynamics in post apartheid south africa abstract a 1993 south african living standards survey documented the legacy of apartheid in the form high levels of inequality and human insecurity drawing on a 1998 re survey of households in the 1993 study this paper explores whether this legacy has been superseded or whether apartheid s end has been only one kind of freedom that has left households in a poverty trap from which they cannot escape after proposing a theoretically grounded dynamic poverty typology that distinguishes stochastic from structural poverty transitions the paper goes on to estimate that significant numbers of the south african poor are potentially trapped in a structural poverty trap and lack the means to escape poverty over time

optimal patentability requirements with complementary innovations abstract we study optimal patent design contrasting the case that two or more innovations are needed to operate a new technology with the traditional case that a single innovation is directly commercialisable the major finding is that with complementary innovations the patentability requirements should be stronger than in the case of stand alone innovation this reduces the fragmentation of intellectual property which is socially costly however to preserve the incentives to innovate if a patent is granted the strength of protection should be generally higher than in the stand alone case

the effects of social networks on employment and inequality we develop a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts we show that employment is positively correlated across time and agents moreover unemployment exhibits duration dependence the probability of obtaining a job decreases in the length of time that an agent has been unemployed finally we examine inequality between two groups if staying in the labor market is costly and one group starts with a worse employment status then that group s drop out rate will be higher and their employment prospects will be persistently below that of the other group

shocks and their consequences across and within households in rural zimbabwe abstract increasing attention is now being paid to poverty dynamics in developing countries this work links the extent to which households smooth consumption or smooth assets given income shocks the empirical evidence on the churning of households in and out of poverty and the possibility that temporary shocks can have permanent consequences using longitudinal data from rural zimbabwe this paper extends the discussion of these issues by disaggregating the impact of shocks by levels of asset holdings by disaggregating the impact of shocks on individual level welfare and by assessing the extent to which such shocks have permanent consequences by doing so it assesses the validity of distinguishing between asset and consumption smoothing and provides insights into whether poverty dynamics assessed at the household level provide an adequate picture of dynamics at the individual level

how strong is the evidence for the existence of poverty traps a multicountry assessment introducing this special collection on asset dynamics and poverty traps this article assesses evidence on these issues across eight panel data sets in six countries generally not previously considered in this perspective it examines the importance of assets in relation to chronic poverty and uses parametric and non parametric methods to test for dynamic asset based poverty traps the article finds that chronically poor households have lower levels of assets than others though does not find evidence of the non convexities which would imply a multiple dynamic poverty trap from this base the article introduces the remainder of the articles in this collection which set out many promising approaches to further develop and improve methods and approaches for looking at poverty traps in future

risk and intertemporal substitution livestock portfolios and off take among kenyan pastoralists abstract most decisions involve variability in two dimensions uncertainty across states of nature and fluctuations over time the stakes involved in tradeoffs between these variability dimensions are especially high for the poor who have difficulty managing and recovering from shocks we assume epstein and zin recursive preferences and estimate risk aversion and intertemporal substitution as distinct preferences using data from kenyan herders results suggest that the assumption implicit in additive expected utility models that relative risk aversion rra is the inverse of the elasticity of intertemporal substitution eis is flawed specifically our rra and eis estimates are consistent with a preference for the early resolution of uncertainty which we believe is driven importantly by the instrumental value of early uncertainty resolution this same preference pattern is consistent with asset smoothing in response to a dynamic asset threshold

welfare dynamics in pakistan and ethiopia does the estimation method matter identifying household level welfare dynamics and associated dynamic poverty trap thresholds can have important implications for the targeting of poverty reduction policies the small existing empirical microeconomic literature has found evidence both for and against poverty traps using household panel data from rural pakistan and ethiopia this article examines whether these different results are likely driven by differences in estimation methods or whether they reflect actual differences across settings it applies the estimation methods from the existing literature to the same two datasets and also proposes a novel semiparametric panel data estimator that combines the advantages of the previous fully parametric and nonparametric approaches the results suggest that absent any dynamic poverty trap thresholds the effect of using different estimation methods is secondary having a small influence on the estimated long term level of household well being but not the identification of multiple dynamic welfar

regional agricultural endowments and shifts of poverty trap equilibria evidence from ethiopian panel data we examine changes in patterns of equilibria over time and across regions applied to the ethiopia rural household survey we revisit incidence of multiple equilibria using new nonparametric techniques and examine single equilibria that remain stagnant below the poverty line using quantile regressions we identify differences across the income distribution we introduce the empirical analysis of sequences of equilibria we identify a single equilibrium in 1994 1999 but find a second higher equilibrium emerging in 1999 2004 evidencing a shift from unimodal toward a bimodal asset distribution the most deprived region exhibits a low level stagnant equilibrium despite significant rural income growth nationwide

measuring socio economic status in the millennium villages the role of asset index choice how are poverty analyses and poverty traps assessments affected by the choice among conventional methods of asset index construction to address this question this article uses panel data from four sites in the millennium villages project mvp in malawi tanzania mali and ghana to study the relationship between eight asset indices and the sensitivity of findings related to poverty rates poverty transitions and poverty traps to the index used we find that although estimations of poverty rates and transitions are largely consistent across indices evidence of poverty traps can be conditional on which asset index is used the asset indices studied include structural income principal components factor analysis and a reduced set of assets reflecting the portfolio assessed in the demographic health survey dhs data