Working Paper: NBER ID: w22714
Authors: Munenobu Ikegami; Michael R. Carter; Christopher B. Barrett; Sarah A. Janzen
Abstract: 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 of consumption and asset accumulation by households that confront a non-convex production technology and face 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.
Keywords: Poverty Traps; Social Protection; Cash Transfers; Asset Accumulation; Contingent Transfers
JEL Codes: D91; I32; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of social protection policy (H55) | poverty rates (I32) |
| conventional cash transfer programs (H53) | increased poverty over time (I32) |
| hybrid social protection policy (H55) | lower poverty rates (I32) |
| hybrid social protection policy (H55) | prevent households from falling into poverty after shocks (G52) |
| asset accumulation (G51) | reduce future poverty levels (I32) |
| hybrid social protection policy (H55) | new equilibrium where some households only accumulate enough assets to remain eligible for SWCTs (D14) |
| implementing contingent transfers through an insurance mechanism (G52) | mitigate negative moral hazard (G52) |