Risk and Vulnerability Considerations in Poverty Analysis: Recent Advances and Future Directions

In the recent past, growing attention has been devoted to the attempt to correctly include considerations of exposure to risk in the discussions on poverty reduction and, more generally, economic and social development. The purpose of this paper is to take stock of all these efforts and to reconsider the relationship between poverty and exposure to risk. The authors present a short review of current practices of vulnerability measurement to discuss how none of them is truly consistent with an ex-ante view of assessing the true consequences of risk exposure. The authors argue that one way of addressing this inconsistency is by adding an estimate of the insurance cost needed to guarantee a socially accepted minimum level of welfare to the level of consumption expenditure taken as a benchmark to identify the poor. In other words, we define an augmented poverty line where the traditional absolute poverty benchmark level is marked up by the estimated cost of insuring against what are considered socially unacceptable risks. The authors then discuss the practical implications for implementing such a measure and future research directions.