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Poverty, Vulnerability, and Reference-Dependent Utility

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  • Isabel Günther
  • Johannes K. Maier
Abstract
The numerous proposed measures of multi-period poverty and vulnerability have until now not taken into account the insights from behavioral economics. In this paper we argue that recent evidence on individuals' decision making is of high relevance for the measurement of poverty when switching from a static and certain to a dynamic and uncertain framework. Building on reference-dependent utility we propose new measures of both (perceived) multi-period poverty and vulnerability, where the poverty status of an individual is a function not only of (expected) consumption levels but also of (expected) losses and gains in consumption. We demonstrate the implications of the proposed measures with a small illustrative example.

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  • Isabel Günther & Johannes K. Maier, 2014. "Poverty, Vulnerability, and Reference-Dependent Utility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 155-181, March.
    • Handle: RePEc:bla:revinw:v:60:y:2014:i:1:p:155-181
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    Cited by:

    1. Mauricio Gallardo, 2020. "Measuring Vulnerability to Multidimensional Poverty," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 148(1), pages 67-103, February.
    2. Prieto Suarez, Joaquin, 2023. "Degrees of vulnerability to poverty: a low-income dynamics approach for Chile," LSE Research Online Documents on Economics 121993, London School of Economics and Political Science, LSE Library.
    3. Joaquín Prieto, 2024. "Degrees of vulnerability to poverty: A low-income dynamics approach for Chile," Working Papers 666, ECINEQ, Society for the Study of Economic Inequality.
    4. Hill, Ruth Vargas & Porter, Catherine, 2017. "Vulnerability to Drought and Food Price Shocks: Evidence from Ethiopia," World Development, Elsevier, vol. 96(C), pages 65-77.
    5. Catarina Midões & Mateo Seré, 2022. "Living with Reduced Income: An Analysis of Household Financial Vulnerability Under COVID-19," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 161(1), pages 125-149, May.
    6. Hai‐Anh H. Dang & Peter F. Lanjouw, 2017. "Welfare Dynamics Measurement: Two Definitions of a Vulnerability Line and Their Empirical Application," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 63(4), pages 633-660, December.
    7. repec:ehl:lserod:121085 is not listed on IDEAS
    8. Anh Thu Quang Pham & Pundarik Mukhopadhaya & Ha Vu, 2021. "Estimating poverty and vulnerability to monetary and non-monetary poverty: the case of Vietnam," Empirical Economics, Springer, vol. 61(6), pages 3125-3177, December.
    9. Pham, Huong Dien, 2017. "Do cultural factors alter the relationship between risk attitudes and economic welfare?," TVSEP Working Papers wp-003, Leibniz Universitaet Hannover, Institute for Environmental Economics and World Trade, Project TVSEP.
    10. Park, Hyeon, 2019. "Inter-temporal choices with temporal reference dependence," Research in Economics, Elsevier, vol. 73(1), pages 107-122.
    11. Park, Hyeon, 2023. "A general equilibrium model of dynamic loss aversion," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).

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