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Understanding Poverty$
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Abhijit Vinayak Banerjee, Roland Bénabou, and Dilip Mookherjee

Print publication date: 2006

Print ISBN-13: 9780195305197

Published to Oxford Scholarship Online: September 2006

DOI: 10.1093/0195305191.001.0001

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Poor but Rational?

Poor but Rational?

Chapter:
(p.367) 24 Poor but Rational?
Source:
Understanding Poverty
Author(s):

Esther Duflo

Publisher:
Oxford University Press
DOI:10.1093/0195305191.003.0024

When theoretical work made it clear that being poor meant being cut off from many opportunities that were available to others, the task of empirical economics shifted to providing evidence for market inefficiencies and the potential of economic policies to alleviate them. A new paradigm, “poor but neoclassical”, helped define an empirical agenda and structure a vision of the world, even though it often remained implicit in empirical work. While the poor (and the rich) are all perfectly rational, the markets, left to themselves, may not produce an efficient outcome. In turn, many of the predictions of this body of work have been substantiated by the data. But there are also some fundamental facts for which this view of the world does not account. This essay explores this agenda using two classic examples, which have been very fertile ground for research in development economics: insurance and agricultural investment.

Keywords:   insurance, agricultural investment, behavior, neoclassical

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