 Consumption versus asset smoothing: testing the implications of poverty trap theory in Burkina FasoMichael Carter and Travis Lybbert Journal of Development Economics, 2012, vol. 99, issue 2, 255-264 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. Keywords: Consumption smoothing; Risk; Poverty dynamics; Permanent income hypothesis; Africa; Threshold estimation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:99:y:2012:i:2:p:255-264 DOI: 10.1016/j.jdeveco.2012.02.003 Access Statistics for this article Journal of Development Economics is currently edited by M. R. Rosenzweig More articles in Journal of Development Economics from Elsevier |
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