NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Poverty Traps and the Social Protection Paradox

Munenobu Ikegami, Michael R. Carter, Christopher B. Barrett, Sarah Janzen


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book The Economics of Poverty Traps, Christopher B. Barrett, Michael R. Carter, and Jean-Paul Chavas, editors
Conference held June 28-29, 2016
Forthcoming from University of Chicago Press

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 consumption and asset accumulation by households that confront a non-convex production technology and 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.

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This chapter first appeared as NBER working paper w22714, Poverty Traps and the Social Protection Paradox, Munenobu Ikegami, Michael R. Carter, Christopher B. Barrett, Sarah A. Janzen
Commentary on this chapter: Comment, Stephen C. Smith
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