Poverty Traps and Resource Dynamics In Smallholder Agrarian Systems

1
Poverty Traps and Resource Dynamics In
Smallholder Agrarian Systems
Chris Barrett Cornell University  Guest
Lecture January 27, 2009
2
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.

3
Some African Examples

• 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.

4

• 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.

5
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

6
Some (but unfortunately not all) children in this
system face a lush future.
7
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.

8
Some African Examples

• The result is pockets of productive, seemingly
  sustainable agro-ecosystems amid broad-scale
  economic and ecological problems

9
The Economics of Poverty Traps

• Poverty trap any self-reinforcing mechanism
  which causes poverty to persist (Azariadis
  Stachurski).
• This can include
• unique dynamic equilibrium systems (convergence
  on misery) that are empirically uninteresting
• conditional convergence systems (unique
  equilibria for distinct groups, only some below a
  poverty line)
• multiple equilibrium systems (initial condition
  guides resulting path dynamics)

10
The Economics of Poverty Traps
Welfare Dynamics With Unconditional Convergence
Welfare Dynamics With Conditional Convergence
Welfare Dynamics With Multiple Dynamic Equilibria

High group
Chronic poverty region

Transitory poverty region
Low group
Key unique, common path dynamics with a single
stable dynamic equilibrium
Key unique path dynamics with a single stable
dynamic equilibrium that differs among distinct
groups or individuals
Key nonlinear path dynamics with multiple stable
dynamic equilibria and at least one unstable
dynamic equilibrium (threshold effect)
11
The Economics of Poverty Traps

• How might multiple equilibria emerge?
• Three broad classes of explanations, each with
  quite different policy implications
• Market Imperfections
• Imperfect learning and bounded rationality
• Spillovers, coordination failures and
  economically dysfunctional institutions

12
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.

13
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.

14
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.

15
Poverty Trap Resource Dynamics Link

• The Poors 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 (gt70 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.

16
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/voicele
  ssness.

17
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.

18
Thank you for your time and interest!