1. Poverty Targeting with Heterogeneous Endowments
Ruerd Ruben & Marijke Kuiper

2. Key Issues Focus on within village income inequality Policy simulation
Poverty Targeting with Heterogeneous Endowments
Key Issues
Focus on within village income inequality
Policy simulation
Potential impact of different policy instruments on poverty, income distribution and soil erosion
Micro-simulation
Policy responses of 200 farm households
Aggregate village-level effects
Asset poverty
Poverty traps due to limited endowments
Search for policy complementarities (to overcome asset thresholds)
Motivation of work and focus of study

3. Why looking at heterogeneous endowments?
Poverty Targeting with Heterogeneous Endowments
Why looking at heterogeneous endowments?
40 % of chronic poor live in LFAs
Large within village differences in income and endowments
Define poverty in terms of assets, not only income
Most poverty in LFAs is asset poverty
Assets affect household activity choices
Poor households are trapped in low-return activities
Biased policies if assets reinforce income inequality
Income inequality may affect future growth
Poverty reduction may be at expense of fragile natural resources
Motivation of work and focus of study

4. Poverty Targeting with Heterogeneous Endowments
Objectives & focus
Explore the role of heterogeneous household endowments for:
Policies aimed at poverty reduction
Within-village income inequality
Soil erosion
3 Types of Policies:
Technology (fertilizer, non-fertilizer, all technologies)
Price band reduction (agricultural inputs, consumption goods, all goods
Off-farm employment (migration, cash for work)
Single and Combined Policies
complementarities
Three different criteria for comparing policies
Three sets of policies commonly put forward

5. Model outline Standard farm household model:
Poverty Targeting with Heterogeneous Endowments
Model outline
Standard farm household model:
Maximize utility subject to constraints on production, commodity balance and cash constraint
Model is solved for each of 200 households in a less favoured Ethiopian village:
Households can rent land and oxen but prices are fixed (no village market clearance in the model)
Data from census (endowments), technical coefficient generator (production) and literature (consumption)
Stylized application
No data on asset development
Micro-simulation to get cross section view at importance of assets

6. Income by quintile & assets (base run)
Poverty Targeting with Heterogeneous Endowments
Income by quintile & assets (base run) X
Poverty is key:
RDA suggested 74% poor = 2 $ a day poverty line
Link assets – income = Only clear relation for oxen and livestock; no relation land/labor (land reforms?)
Oxen
Livestock
Land/labor

7. Single policies – improved technologies
Poverty Targeting with Heterogeneous Endowments
Single policies – improved technologies
Single policies: we start by doing one policy at a time
Key point: no major improvements
Only effect on poverty because of flat area around poverty line = be careful with poverty indicators!

8. Single policies – price band reductions
Poverty Targeting with Heterogeneous Endowments
Single policies – price band reductions
Fertilizer – little effect and only for richer households
Consumption goods: stronger effect and especially so for richer households
 Market access is especially helpful if you are buying and selling

9. Single policies – migration
Poverty Targeting with Heterogeneous Endowments
Single policies – migration
Seems like an Earth quake; look at separate effects
Migration: helps a lot IF you have access
CFW helps more for poor households
 Appear interaction effects for some households, not just transfer of income; may take closer look at changes

10. Single policies – cash for work
Poverty Targeting with Heterogeneous Endowments
Single policies – cash for work
Seems like an Earth quake; look at separate effects
Migration: helps a lot IF you have access
CFW helps more for poor households
 Appear interaction effects for some households, not just transfer of income; may take closer look at changes

11. Reductions in poverty and income inequality
Poverty Targeting with Heterogeneous Endowments
Reductions in poverty and income inequality
Poverty Severity of Distribution Erosion
headcount poverty Gini ratio
(% points) (% points) (points) (% change)
Technology ~+3
Price-band
Migration
CFW

12. Effects of single policies
Poverty Targeting with Heterogeneous Endowments
Effects of single policies
Poverty:
Improved technologies have limited impact
Migration reduces number of poor most
Cash for work (CFW) reaches poorest of poor
Income inequality:
Increases by a reduction in price band consumption goods
Decreases most with CFW
Soil erosion:
Increases with improved non-fertilizer technologies
Decreases with all other policies
Main conclusions regarding single policies= one policy at a time

13. Interaction effects of combined policies
Poverty Targeting with Heterogeneous Endowments
Interaction effects of combined policies
Assets were important for initial income and effects of policies
Maybe combining policies helps:
- fertilizer policies only helps richer farmers with cash; technologies and cash for work can put fertilizer technologies within the reach of poor households
Assess by computing interaction effects: or does the combination of two policies yield more than the sum of separate policies?
This holds especially for the poor:
- all positive
- all large

14. Effects of combined policies
Poverty Targeting with Heterogeneous Endowments
Effects of combined policies
Poverty & income inequality:
Complementary policies target the poorest households by helping to overcome asset limitations
Combining CFW with price band yields best effect
Erosion:
Combining policies in most cases leads to similar erosion as (sum of) separate policies
Exception: a change in technology choice due to price changes (more erosion)

15. Poverty Targeting with Heterogeneous Endowments
Conclusions
Oxen play a central role in households’ income earning capacities
Poverty/income inequality
Technology improvements yield little
Price band reductions increase income inequality
Off farm income (migration / CFW) reduces poverty most
Erosion:
No trade-off between poverty and erosion  win-win
Combining policies helps targeting the poorest households
Key finding is that because of the importance of assets, combining policies such that asset limitations are overcome helps in targeting the poor households

16. Thanks for your attention!
Poverty Targeting with Heterogeneous Endowments
Thanks for your attention!