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Social protection in the face of climate change: targeting principles and financing mechanisms

Published online by Cambridge University Press:  18 December 2017

Michael R. Carter  and
Sarah A. Janzen
Michael R. Carter
Affiliation:
Department of Agricultural and Resource Economics, University of California, Davis, USA
Sarah A. Janzen*
Affiliation:
Department of Agricultural Economics & Economics, Montana State University, P.O. Box 17920, Bozeman, MT 59717-2920, USA
*
*Corresponding author. E-mail: sarah.janzen@montana.edu
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Abstract

This paper builds a multi-generation household model of consumption, accumulation, and risk management to assess the dynamic consequences of climate risk exposure. The model incorporates long-term impacts of consumption shortfalls, induced by optimal ‘asset smoothing’ coping behavior of the vulnerable, on poverty. The analysis shows the long-term level and depth of poverty can be improved by incorporating ‘vulnerability-targeted social protection’ into a conventional social protection system. The paper further shows insurance-based vulnerability-targeted social protection dominates (in economic growth and poverty reduction measures) both in-kind transfers and asset-based vulnerability-targeted protection. We then stress test social protection mechanisms and find the relative performance of insurance-based vulnerability-targeted social protection improves when subjected to current pessimistic projections about increasing drought risk. However, if drought risk increases beyond current climate change projections, then even the vulnerability-targeted policy loses its ability to stabilize the extent and depth of poverty.

Keywords

Climate changeinsurancepoverty dynamicsrisk and uncertaintysocial protection

JEL classification

Q54: Climate • Natural Disasters and Their Management • Global Warming H50: General G22: Insurance • Insurance Companies • Actuarial Studies I32: Measurement and Analysis of Poverty
Type
Research Article
Information
Environment and Development Economics , Volume 23 , Special Issue 3: Poverty and Climate Change , June 2018 , pp. 369 - 389
Copyright
Copyright © Cambridge University Press 2017 

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