Social Network Capital, Economic Mobility and Poverty Traps

The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model and simulate endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ exit from poverty. Through numerical simulation, we show that the ameliorative potential of social networks therefore depends fundamentally on broader socioeconomic conditions, including the underlying wealth distribution in the economy, that determine the feasibility of social interactions and the net intertemporal benefits of social network formation. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.

Social Network Capital, Economic Mobility and Poverty Traps

The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ efforts to exit poverty. The ameliorative potential of social networks therefore depends fundamentally on the underlying wealth distribution in the economy. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.social network capital; endogenous network formation; poverty traps; multiple equilibria; social isolation; social exclusion; crowding-in transfer

Pro-Poor Risk Management: Essays On The Economics Of Index-Based Risk Transfer Products

This dissertation explores innovations in index-based risk transfer products (IBRTPs) as a means to address an important insurance market failure that leaves many poor and vulnerable populations exposed to considerable uninsured risk. IBRTPs can address problems of covariate risk, asymmetric information and high transaction costs that have precluded the emergence of formal insurance market in low-income areas, where uninsured risk remains a leading cause of persistent poverty. A brief introductory chapter situates this dissertation in the broader, emergent literature on IBRTPs. The second chapter explains how the strong relation between widespread human suffering and weather shocks creates an opportunity to develop famine indexed weather derivatives to finance improved emergency response to humanitarian crises. The third chapter explains how these instruments might be designed and used by operational agencies for famine prevention in response to slow-onset disasters. It uses household data to develop a famine index based on child anthropometric data that is strongly related to rainfall variability and other exogenous measures that are reliably available at low cost; that index can be used to trigger payments to improve the timeliness and cost-effectiveness of humanitarian response. The fourth chapter develops commercially viable index based livestock insurance (IBLI) to protect livestock assets for northern Kenyan pastoralists. The underlying herd mortality index is constructed off a statistical model that relates longitudinal household-level herd mortality data to remotely sensed vegetation index data. The resulting index performs well out of sample. Pricing and risk exposure analysis also demonstrate the commercial potential of the product, which has been taken up by financial institutions in Kenya for marketing in early 2010. The fifth chapter explores the household-level performance of IBLI. It uses simulations parameterized based on household panel data, risk preference estimates elicited in field experiments and remote sensing vegetation data to explore how well IBLI performs in preserving household wealth in this setting characterized by bifurcated livestock growth dynamics characteristic of poverty traps. Willingness to pay and aggregate demand for the contract are also estimated. This analysis shows that bifurcation in livestock herd dynamics leads to nonlinear insurance valuation regardless of risk preferences

Early assessment of seasonal forage availability for mitigating the impact of drought on East African pastoralists

Author Posting.© The Author(s), 2015. This is the author's version of the work and is distributed under the terms of the Creative Commons Attribution License. The definitive version was published in Remote Sensing of Environment 174 (2016): 44-55, doi:10.1016/j.rse.2015.12.003.Pastoralist households across East Africa face major livestock losses during drought periods that can cause persistent poverty. For Kenya and southern Ethiopia, an existing index insurance scheme aims to reduce the adverse effects of such losses. The scheme insures individual households through an area-aggregated seasonal forage scarcity index derived from remotely-sensed normalized difference vegetation index (NDVI) time series. Until recently, insurance contracts covered animal losses and indemnity payouts were consequently made late in the season, based on a forage scarcity index incorporating both wet and dry season NDVI data. Season timing and duration were fixed for the whole area (March-September for long rains, October-February for short rains). Due to demand for asset protection insurance (pre-loss intervention) our aim was to identify earlier payout options by shortening the temporal integration period of the index. We used 250m-resolution 10-day NDVI composites for 2001-2014 from the Moderate Resolution Imaging Spectroradiometer (MODIS). To better describe the period during which forage develops, we first retrieved per-pixel average season start- and end-dates using a phenological model. These dates were averaged per insurance unit to obtain unit-specific growing period definitions. With these definitions a new forage scarcity index was calculated. We then examined if shortening the temporal period further could effectively predict most (>90%) of the interannual variability of the new index, and assessed the effects of shortening the period on indemnity payouts. Our analysis shows that insurance payouts could be made one to three months earlier as compared to the current index definition, depending on the insurance unit. This would allow pastoralists to use indemnity payments to protect their livestock through purchase of forage, water, or medicines.AV was funded under a contract from the International Livestock Research Institute. CCU was supported by the U.S. National Science Foundation under grant OCE-1203892.2016-12-1

Dynamic Field Experiments in Development Economics: Risk Valuation in Morocco, Kenya, and Peru

The effective design and implementation of interventions that reduce vulnerability and poverty require a solid understanding of underlying poverty dynamics and associated behavioral responses. Stochastic and dynamic benefit streams can make it difficult for the poor to learn the value of such interventions to them. We explore how dynamic field experiments can help (i) intended beneficiaries to learn and understand these complicated benefit streams, and (ii) researchers to better understand how the poor respond to risk when faced with nonlinear welfare dynamics. We discuss and analyze dynamic risk valuation experiments in Morocco, Peru, and Kenya.poverty, risk and uncertainty, dynamics, experiments, Kenya, Morocco, Peru, International Development, Research Methods/ Statistical Methods, Risk and Uncertainty,

Working Paper: Poverty Traps and Climate and Weather Risk: Limitations and Opportunities of Index-based Risk Financing

This paper examines the linkage between climate and weather risks and shocks and poverty traps by integrating diverse literatures on a wide range of related topics that enhance our understanding of how climate and weather shocks impact both poverty and development. That understanding is used to enlighten our evaluation of the potential developmental role of innovations in index-based risk financing for catastrophic climate and weather shocks

Social Network Capital, Economic Mobility and Poverty Traps

The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ efforts to exit poverty. The ameliorative potential of social networks therefore depends fundamentally on the underlying wealth distribution in the economy. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty

Willingness to Pay for Index Based Livestock Insurance among Vulnerable Pastoralists: Results from a Field Experiment in Northern Kenya

Index based livestock insurance (IBLI) is designed for managing key covariate risk of livestock loss of pastoralists in the remote arid lands of northern Kenya, where insurance markets are effectively absent and uninsured risk is the main cause of persistent poverty. It compensates for predicted area livestock loss estimated using the objectively verifiable, remotely sensed measures of vegetative cover on rangelands and hence has great promise as market viable insurance product for these infrastructure deficient communities. This paper studies patterns and determinants of IBLI demand. It uses a double-bounded contingent valuation technique to elicit willingness to pay (WTP) for IBLI among pastoralists in five locations, where the product was scheduled for pilot sale. Insurance experiment games with real financial incentives were first played among the sample households to ensure their understanding about IBLI followed by sequential questions on insurance decision. Pastoralists were first asked to choose the proportion of herd they wish to insure. Conditional on their chosen proportion, they were then asked a sequence of dichotomous WTP questions, responses of which were used to form bounds for their unobserved WTP. A modified Heckman�s two-step conditional expectation correction approach is applied to estimate pastoralists� insurance demand conditional on household�s characteristics. Wealth, risk preference, perceived basis risk and subjective expectation of loss serve as the key WTP determinants, conditional on understanding of the mechanics and value of IBLI. Households most vulnerable to falling into a poverty trap were also shown to have the highest price elasticity of demand, despite their potentially highest dynamic welfare gain from the insurance. This is in contrast to the relatively low elasticity of demand found among the poorest, whose dynamic welfare benefits from insurance were minimal

Social network capital, economic mobility and poverty traps

This paper explores the role social network capital might play in facilitating poor agents' escape from poverty traps. We model and simulate endogenous link formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can either complement or substitute for productive assets in facilitating some poor households' escape from poverty. However, the voluntary nature of costly link formation also creates exclusionary mechanisms that impede some poor households' use of social network capital. Through numerical simulation, we show that the ameliorative potential of social networks therefore depends fundamentally on the broader socio-economic wealth distribution in the economy, which determines the feasibility of social interactions and the net intertemporal benefits resulting from endogenous network formation. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty