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Can a hazardous event be another source of poverty traps ?

Can Mavi

No 2017.14, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: This paper aims to present another explanation for poverty traps, by the presence of hazardous event probability. We show that adaptation and mitigation policies have different effects on the occurrence of poverty traps : the former could cause a poverty trap while the latter could save from the trap since it decreases the abrupt event probability. As a result, we present a new trade-off between adaptation and mitigation policy other than the usual dynamic trade-off highlighted in many studies (Zemel (2015), Tsur and Zemel (2015)), which is crucial for developing countries. Our simulation results show that when the economy faces a higher risk, adaptation investment increases more relative to mitigation activity. We also show that a trapped economy adopts an aggressive exploitation policy with higher abrupt event risk while the economy at high equilibrium becomes more precautionary.

Keywords: Abrupt damage; Occurrence Hazard; Poverty trap; Adaptation; Mitigation (search for similar items in EconPapers)
JEL-codes: O13 D81 Q2 Q53 (search for similar items in EconPapers)
Date: 2017-09
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http://faere.fr/pub/WorkingPapers/Askan%20Mavi_FAERE_WP2017.14.pdf First version, 2017 (application/pdf)

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