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Vulnerability to poverty

Working Paper 2016-409

Abstract

Two competing strands exist within the theoretical literature on vulnerability to poverty, each with its own policy implications. Vulnerability may be seen as low expected utility and thus stress the danger of self-perpetuating poverty, as the poor shy away from risky, yet necessary decisions to escape their hardship. Alternatively, vulnerability is often construed as expected poverty and provides policy-makers with a forward-looking viewpoint that both sheds light and raises new questions on how best to formulate the targeting of social spending. This paper provides an overview of the theoretical work underpinning each of these competing views.

Authors: Cesar Calvo.

Keywords: Poverty, vulnerability, risk aversion.
JEL: I3.