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

28 Pages Posted: 9 Jan 2017

See all articles by Satya R. Chakravarty

Satya R. Chakravarty

Indian Statistical Institute, New Delhi - Economic Research Unit

Nachiketa Chattopadhyay

Indian Statistical Institute, New Delhi

Jacques Silber

Bar-Ilan University

Guanghua Wan

Asian Development Bank Institute

Date Written: November 8, 2016

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

JEL Classification: D84, I32

Suggested Citation

Chakravarty, Satya and Chattopadhyay, Nachiketa and Silber, Jacques and Wan, Guanghua, Measuring the Impact of Vulnerability on the Number of Poor: A New Methodology with Empirical Illustrations (November 8, 2016). ADBI Working Paper 612, Available at SSRN: https://ssrn.com/abstract=2893055 or http://dx.doi.org/10.2139/ssrn.2893055

Satya Chakravarty (Contact Author)

Indian Statistical Institute, New Delhi - Economic Research Unit ( email )

203 B. T. Road
Calcutta, 700 108
India

Nachiketa Chattopadhyay

Indian Statistical Institute, New Delhi ( email )

7 S. J. S. Sansanwal Marg
New Delhi, 110016
India

Jacques Silber

Bar-Ilan University ( email )

Ramat Gan
Ramat Gan, 52900
Israel

Guanghua Wan

Asian Development Bank Institute ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
51
Abstract Views
484
Rank
693,765
PlumX Metrics