Measuring the Impact of Vulnerability on the Number of Poor: A New Methodology with Empirical Illustrations

Satya Chakravarty, Nachiketa Chattopadhyay, Jacques Silber and Guanghua Wan
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Nachiketa Chattopadhyay: Asian Development Bank Institute

No 612, ADBI Working Papers from Asian Development Bank Institute

Abstract: Given a poverty line, a person who is non-poor (poor) currently may not be treated as non-poor (poor) in a vulnerable situation. The poverty line is adjusted in the presence of vulnerability such that the utility of a person at the current poverty line and that at the adjusted poverty line become identical. Using an additive model of vulnerability, it is shown that if the utility function obeys constant Arrow-Pratt absolute risk aversion, then the harmonized poverty line is a simple absolute augmentation of the current poverty line. On the other hand, under a multiplicative model of vulnerability with constant Arrow-Pratt relative risk aversion, the revised poverty line is a simple relative augmentation of the current poverty line. Empirical illustrations assume that constant relative risk aversion applies to Asia and the Pacific. Upward adjustment of the poverty line under increased vulnerability, as captured through the value of the risk aversion parameter, is also observed.

Keywords: Poverty; vulnerability; poverty line; Arrow-Pratt risk aversion (search for similar items in EconPapers)
JEL-codes: D84 I32 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2016-12-31
New Economics Papers: this item is included in nep-sea and nep-upt
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Chapter: Measuring the impact of vulnerability on the number of poor: a new methodology with empirical illustrations (2016)
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