Munenobu Ikegami

Poverty Traps and Social Protection

This paper demonstrates that there are potentially large returns to having a social protection policy that stakes out a productive safety net below the vulnerable and keeps them from slipping into a poverty trap. Much of the value of the productive safety net comes from mitigating the ex ante effects of risk and crowding in additional investment. The analysis also explores the implications of different mechanisms of targeting social protection transfers. In the presence of poverty traps, modestly regressive targeting based on critical asset thresholds may have better long-run poverty reduction effects than traditional needs-based targeting.

Looking Forward: Theory-Based Measures of Chronic Poverty and Vulnerability

Conventional poverty analysis is ill-equipped to answer questions concerning the future persistence of observed poverty. Are those observed to be poor at a particular point in time chronically poor, or are they simply in a transitory state? While a number of analysts have struggled with this question, this paper employs economic theory of asset accumulation and poverty traps to derive estimable chronic poverty measures. These measures in turn provide a conceptual foundation for understanding and measuring vulnerability. The analysis identifies two sorts of chronic poverty. The first type (intrinsic chronic poverty) is experienced by those who are intrinsically disadvantaged by lack of skill or unfavourable economic environment. The second (multiple equilibrium chronic poverty) is experienced by those who have the potential to be non-poor given their skills and circumstances, but who lack sufficient assets to craft a pathway out of poverty. The policies needed to address these two types of chronic poverty are distinct. Moreover, the analysis shows that the second group of chronically poor are especially vulnerable to shocks. Social protection policies are likely to be an especially effective means for addressing this multiple equilibrium chronic poverty. After illustrating these concepts with simulated data, the paper closes with an empirical application to South Africa.

Insuring Against Drought-Related Livestock Mortality: Piloting Index Based Livestock Insurance in Northern Kenya

Climate related shocks are among the leading cause of production and efficiency losses in smallholder crop and livestock production in rural Africa. Consequently, the identification of tools to help manage the risks associated with climactic extremities is increasingly considered to be amongst the key pillars of any agenda to enhance agricultural growth and welfare in rural Africa. This paper describes the application of a promising innovation in insurance design – index‐based insurance – that seeks to bring the benefits of formal insurance to help manage the weather‐related risks faced by rural crop and livestock producers in low‐income countries. In particular, we highlight the research and development agenda of a comprehensive effort to design commercially viable index‐based livestock insurance aimed at protecting the pastoral populations of Northern Kenya from the considerable drought‐related livestock mortality risk that they face. Detailing the conditions that make the pastoral economy in Northern Kenya an ideal candidate for the provision of index‐based insurance products, the paper describes the contract design, defines its structure, offers analysis that indicates a high likelihood of commercial sustainability among the target market and describes the process of implementation leading up to the launch of a pilot in Marsabit district of Northern Kenya in early 2010.