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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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Poverty Persistence and Design of Antipoverty Policies

Poverty Persistence and Design of Antipoverty Policies

(p.231) 15 Poverty Persistence and Design of Antipoverty Policies
Understanding Poverty

Dilip Mookherjee

Oxford University Press

This essay argues that economists have ignored a crucial dimension of poverty: its intrinsically dynamic characteristic of being locked into a low-level trap of asset (or capability) deprivation, resulting in exclusion from social and economic life on a par with the rest of society. Long-term poverty is fundamentally self-perpetuating. Hence, poverty alleviation in the long run must address incentives for the poor to acquire capabilities and assets that will enable them (or their children) to escape poverty in the future. In the Mirrlees model, for instance, the income-earning capability of every household is exogenously given, hence the root causes of current poverty are not addressed. A dynamic extension of this framework would be needed to include investment decisions by households, which would affect the evolution of their future abilities. Such a framework more directly addresses some of the general public concerns concerning the tendency of comprehensive welfare systems to breed long-term dependence. At the same time, the argument for superiority of cash over in-kind transfers ceases to be valid, even within the conventional utilitarian framework where consumer “rationality” is not questioned.

Keywords:   social insurance policy, welfare policy, inequality, exclusion

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