Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/163111
Authors: 
Chakravarty, Satya R.
Chattopadhyay, Nachiketa
Silber, Jacques
Wan, Guanghua
Year of Publication: 
2016
Series/Report no.: 
ADBI Working Paper Series 612
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. This paper looks at the impact of vulnerability on the poverty line. 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. The paper contains empirical illustrations which assume that constant relative risk aversion applies to countries involved in the Asia-Pacific region. Upward adjustment of the poverty line under increased vulnerability, as captured through the value of the risk aversion parameter, is also observed.
Subjects: 
Poverty
vulnerability
poverty line
Arrow-Pratt risk aversion
JEL: 
D84
I32
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/igo/
Document Type: 
Working Paper

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