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Ceteris paribus

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Gepubliceerd om: september 22 2014


ESB Ceteris paribus

Ceteris paribus
het woord aan…
Maitreesh Ghatak
Maitreesh Ghatak is hoogleraar
aan de London School of Economics. Op 3 oktober geeft hij een
seminar aan de Erasmus School
of Economics. ESB stelde hem
een aantal vragen.
What are you currently working
“I am currently writing a policy
paper which looks at the development economics literature on
poverty traps. My goal is to make
two conceptual contributions, by
first categorising poverty traps in
terms of their causes, and second
investigating how best to aid the
individuals trapped in poverty. I
thus aim to link the theoretical literature on poverty traps with the
various types of policies designed
to counter poverty, and find out
which measures are most efficient
in which cases. We could classify
poverty-alleviation policies in

three broad categories: unconditional cash transfers, conditional
cash transfers, and in-kind transfers. To qualify for a cash transfer
an individual’s income needs to
be below a certain threshold value, if this is indeed the case a cash
transfer will be granted. This can
either be with or without external
requirement, which could for instance require the individual to
send his children to school or let
them take immunisation shots.
Alternatively, aid providers could
opt to provide food, sanitation,
education and health services to
those who have limited access to
these goods and services, which
we refer to as an in-kind transfer.
The debate is about which kind of
transfers are most efficient. But it
might be the case that a uniform
approach does not exist, and we
therefore need to come up with
tailor-made solutions. For this, we
need to diagnose what is the source of the problem and then design

Uit de oude ESB-doos
Nieuw is altijd beter?

Er doen zich voortdurend nieuwe ontwikkelingen
voor, waardoor de waargenomen samenhangen
veranderen. Men spreekt dan van trendbreuken of
van veranderingen van de economische structuur,
maar het is natuurlijk niet de werkelijkheid die zich
misdraagt, maar het model dat het niet meer kan volgen.
Langman, M.A. (1986) Nakaarten. ESB, 71(3551), 369.


the treatment accordingly. This is
the main point I want to make.â€
How do you go about this question?
“First, I divide poverty traps in
two broad categories. The first
argument is that part of the poverty traps found are caused by
factors which are outside of the
individual’s choice set and is not
simply a matter of people having
little money. One could think of
missing markets. As in developing
countries judiciary systems tend
to be weak, the enforceability of
contracts often is weak as well.
This leads to credit constraints as
credit suppliers are worried about
default. This hits the poorest the
hardest, as they need credit most
and also, because they lack assets
that could be used as collateral. As
a result, these individuals remain
entrapped in poverty. These problems are outside of the individual’s control, and cannot be solved
by giving them more money, but

they do affect his choice set significantly.
The second argument is that part
of the poverty traps however, are
within the individual’s control.
Having very low incomes means
an individual has to engage in a
day-to-day struggle for survival
for himself and his family. These
subsistence needs rule out the
feasibility of saving money and
being able to secure a better for
future for themselves and their
children, for example, through
investments in health and education. These problems are compounded if poorer people tend
to discount the future more, or
put less weight on the welfare of
their children, or engage in behaviour that is not in the long-run
interest of himself or his family.
I would argue that both types of
poverty traps are dealt with in
different ways.â€
What actions would you suggest
policy makers take for both types
of poverty traps?
“For the former type I would
suggest cash transfers are only a
second-best treatment. A better
cure to the externally driven poverty traps is to intervene directly
to fix the market failure and remove the institutional imperfections.
This can be combined with cash
transfers, but in and of itself, it is
not going to solve the problem.
The latter type can only be solved
by cash transfers, as the source of
the problem is poverty itself. To
the extent individuals are subject
to behavioural biases, and are not
necessarily putting the same welfare weights on every member of
the family (e.g., women, children)
then these transfers could well be
conditioned on an external requirement, thereby limiting the effects of these biases. â€

Jaargang 99 (4694) 25 september 2014