Poverty Traps and Resource
Dynamics In Smallholder
Agrarian Systems
Chris Barrett
Cornell University
Guest Lecture
January 27, 2009
Introduction
Oikos (“estate” or “household”) – common etymological
root to ecology and economics suggests deep
connections.
Yet strong latent connections commonly overlooked.
Example: burgeoning literatures on thresholds and
multiple dynamic equilibria: resilience, catastrophic
collapse, poverty traps, etc. Need to integrate better.
Conservationists need to consider predictable consequences
of human agency
Development scholars need to respect the feedback
between human and natural processes.
Some African Examples
A. The East African ASAL
Recent evidence suggests multiple herd size equilibria:
- low level associated with sedentarization and localized
range degradation … a resource degradation poverty trap
- high level associated with mobile pastoralism and
resilient range ecology
- multiple equilibria arise due to uninsured climate risk,
and are faced by those with moderate-high herding ability
(low ability herders face unique, low-level equilibrium)
Effects are compounded by contested, unclear property rights
in land (and insecure rights in animals) which leads to
conflict and coordination problems … but different from
the classic Hardin tragedy of commons concern.
Those who maintain a herd remain mobile on a resilient
landscape, while those who lose their herd collapse into
destitution on a degrading local landscape.
Some African Examples
B. Western Kenyan Maize Systems
-
Shepherd and Soule (1998), Barrett et al. (2006) find homeostatic
systems alongside poverty and severe soil degradation.
Lumpy and delayed payoff investments
(tea, dairy) and INRM form a
reinforcing feedback loop.
Collapses into persistent poverty trace
back to (health) shocks.
Result is apparent multiple equilibria
in both assets/incomes and in
soil conditions
Market failures problems compounded
by (i) informational lags and biases in
soil perceptions, and (ii) serious
coordination problems in striga mgmt
-
Rosenblatt-Parzen density
1.0
0.8
0.6
0.4
0.2
0.0
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2002 real per capita income (US$/day)
2
2002 Sahn-Stifel Asset Index
-
1
0
-1
-1
0
1
1989 Sahn-Stifel Asset Index
2
Some (but
unfortunately not all)
children in this system
face a lush future.
Some African Examples
C. Rice Systems in Madagascar
A national scale resource degradation poverty trap?
Heavy dependence on rice, but low uptake of improved
inputs or production methods – due to many market
imperfections (insurance, credit, land) – leads to low
yields, soil nutrient mining, erosion, and slash-and-burn
extensification.
Imperfect learning about new rice technologies and bounded
rationality associated with social customs (famadihana
and ritual cattle sacrifice)
Coordination problems in forest access and water use to
facilitate SRI uptake and reduce deforestation and
resulting siltation of irrigation canals.
Some African Examples
The result is pockets of productive, seemingly
sustainable agro-ecosystems amid broad-scale
economic and ecological problems
The Economics of Poverty Traps
Poverty trap = “any self-reinforcing mechanism which
causes poverty to persist” (Azariadis & Stachurski).
This can include:
(i) unique dynamic equilibrium systems (convergence
on misery) that are empirically uninteresting
(ii) conditional convergence systems (unique equilibria
for distinct groups, only some below a poverty line)
(iii) multiple equilibrium systems (initial condition
guides resulting path dynamics)
The Economics of Poverty Traps
Welfare
WelfareDynamics
DynamicsWith
WithUnconditional
Conditional
Convergence
Convergence
Welfare
Dynamics
With
Multiple
Dynamic
Equilibria
Well-beingt+1
Chronic
poverty
region
High group
Transitory
poverty
region
W2
Pov.
line
Low group
`
W2
Well-beingt
Key: unique, common path dynamics with a single stable dynamic equilibrium
Key:
Key:
unique
nonlinear
path path
dynamics
dynamics
with awith
single
multiple
stable
stable
dynamic
dynamic
equilibrium
equilibria
that
differs
and at
among
least distinct
one unstable
groupsdynamic
or individuals
equilibrium (threshold effect)
The Economics of Poverty Traps
How might multiple equilibria emerge?
Three broad classes of explanations, each with quite
different policy implications:
A) Market Imperfections
B) Imperfect learning and bounded rationality
C) Spillovers, coordination failures and economically
dysfunctional institutions
The Economics of Poverty Traps:
Market Imperfections
Multiple variants of market imperfections story:
Nonlinear pricing
Internal economies of scale (incl. sunk costs)
Credit (financial liquidity) constraint
Uninsured risk
Unobservable labor effort and resulting moral hazard
and efficiency wages
Implication: poverty traps can be overcome with adequate
resources to overcome the market imperfections that
presently obstruct capital accumulation and technology
adoption in the poorest areas of the tropics.
The Economics of Poverty Traps:
Imperfect Learning/Bounded Rationality
Imperfect learning/bounded rationality alternative:
Agents may have a difficult time observing changes in the
environment around them, especially changes occurring
at some distance from their current position.
Differences in beliefs or subjective expectations can generate
“inertial self-reinforcement” (Mookherjee and Ray2000)
3 variants of problem: informational lags (e.g., mosquito
control, technology treadmill), differentiated social
networks, norms/conventions under bounded
rationality.
Implication: Additional resources need not generate the
most productivity-enhancing investments. Rather, the
highest return interventions would provide more timely,
accurate and universally available information so as to
surmount barriers to learning and innovation.
The Economics of Poverty Traps:
Spillovers, coordination failures and
economically dysfunctional institutions
Several variants of this explanation:
Technological and pecuniary externalities
Coordination failures more generally
(Formal and informal) rules of behavior that breed
economically dysfunctional institutions: corruption,
weak property rights, failure to contribute to public
goods and services, etc.
Implication: Need to craft rules of interaction – and rules
for transitioning to new rules – to facilitate coordination,
create focal points at Pareto dominant equilibria, and
discourage venal behaviors.
Poverty Trap – Resource Dynamics Link
A. The Poor’s Assets
Poor smallholders’ heavy dependence on natural capital
creates intrinsic linkages. When the key state variables
of two systems are shared in common, strong
interdependence follows automatically.
Resource dependence need not lead to a poverty trap;
indeed, resource exploitation has often been the
pathway out of poverty.
Key biophysical assets: human health is primary for the
poor; complementary inputs from nature (forests, soils,
water, wildlife), especially land (>70% of natural capital
in low-income countries).
Most biological assets follow highly nonlinear dynamics:
generates coupled collapse or abundance in human
well-being and biological resources … no automatic
vicious cycle, rather multiple equilibria.
Poverty Trap – Resource Dynamics Link
B. Poverty Trap Mechanisms Apply to NRM, too
Market imperfections – e.g., credit constraints, uninsured
risk, unobservable labor effort – cause underinvestment
in natural resources conservation by smallholders.
Information lags and flow barriers, and norms/conventions
associated with bounded rationality all inhibit
adaptation and lead to inertial self-reinforcement.
Externalities, coordination failures and weak institutions
pervasive and long recognized as central to NRM
problems in the rural tropics: insecure property rights,
lack of rules (or enforcement), corruption and
powerlessness/voicelessness.
Policy Implications
“Divergence, big time”: most low-income countries face
declining per capita wealth while most high-income
countries enjoy increasing per capita wealth.
Poverty traps imply a clear compulsion to intervene … only
reinforced by close coupling to environmental state
But how to intervene is much less clear because alternative
mechanisms imply different responses: DeSoto vs.
Sachs.
Most likely, face “fractal poverty traps” (Barrett and Swallow
WD 2006) – interlinked processes across different
scales, with micro-level market imperfections
reinforcing (and reinforced by) meso-level information
problems and macro-level institutional failures.
Implication: high returns to detailed empirical study to
identify proximate causes in a given setting.
Thank you for your time and interest!