Downside mean-semideviation approach for measuring vulnerability to poverty

What is it about?

This paper introduces a new approach for measuring vulnerability to poverty, using the standard downside mean-semideviation as a risk parameter. We identify vulnerability by comparing the uncertain outcomes of household well-being with poverty line in a mean-risk behavior framework.

Featured Image

Why is it important?

Because vulnerability must not concern the well-being variability per se, but only those deviations below the expected value, which fall under the poverty line. That is, the risk of falling into poverty is essentially asymmetric in nature. First, because it relates to the threat of obtaining an unfavorable outcome, therefore the upward dispersions are irrelevant to vulnerability assessment. Second, because the probability density functions of household well-being are not necessarily symmetrical. Then, when assessing vulnerability to poverty symmetrically, it is possible mistakenly to compute the risk of having a shortfall of well-being, using the data on welfare improvements. Third, because the agents do not dislike the dispersion per se, but only the downside dispersion.

Perspectives