This paper explores the consequences of nonlinear wealth dynamics for the formation of bilateral credit arrangements to help manage idiosyncratic risk. Building on recent empirical work that finds evidence consistent with the hypothesis of multiple equilibrium poverty traps, and using original primary data on expected wealth dynamics, social networks and informal loans among southern Ethiopian pastoralist households, we find that the threshold at which wealth dynamics bifurcate serves as a focal point at which lending is concentrated. Informal lending responds to recipients' losses but only so long as the recipients are not "too poor". Our results suggest that when shocks can have long term effects, loans are not scale-neutral. Furthermore,
We use a large, rich dataset compiled from results of university extension trials to estimate the contribution of genetic modification (GM) to changes in corn yield in the United States from timeA to timeB. Through repeated experimental trials, we obtain consistent estimates of the effect of these traits by using both the Hausman‐Taylor estimator and a comparison of fixed effects estimates analogous to the agronomic practice of comparing near‐isolines. Our results suggest that GM traits had a positive impact on yield, but that gains associated with combining several GM traits in one hybrid are not necessarily additive.
Recent empirical work finds evidence of highly nonlinear wealth dynamics among Boran pastoralists of southern Ethiopia, consistent with the hypothesis of poverty traps. This paper explores the consequences of such dynamics for informal inter-household transfers. Using original primary data on social networks and transfers, we find that asset transfers respond to recipients' losses, but only so long as the recipients are not "too poor". The persistently poor are excluded from social networks and do not receive transfers in response to shocks. We also find some evidence that the threshold at which wealth dynamics bifurcate may serve as a focal point at which transfers are concentrated. This suggests that asset transfers, in the context of poverty traps, may aim to insure the permanent component of income generation, rather than the transitory component, as standard insurance models assume.
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