Informal Insurance in the Presence of Poverty Traps: Evidence from Southern Ethiopia

Paulo Santos, Christopher B. Barrett
2006 Social Science Research Network  
Recent empirical work finds evidence of highly nonlinear wealth dynamics among Boran pastoralists of southern Ethiopia, consistent with the hypothesis of poverty traps. This paper explores the consequences of such dynamics for informal inter-household transfer arrangements. Using original primary data on social networks and transfers, collected among the same Boran population, we find that transfers of cattle respond to recipients' cattle losses, but only so long as the recipient is not too far
more » ... ient is not too far below the critical asset threshold at which herd dynamics bifurcate. The persistently poor disappear from social networks and do not receive transfers in response to shocks. These results suggest that asset transfers through social networks aim to insure the permanent component of income generation in the face of nonstationary income processes associated with a poverty trap, rather than the transitory component, as standard insurance models assume.
doi:10.2139/ssrn.998541 fatcat:x4hvdcedsreclem7zb63xigxxi