Insurance Against Poverty

Insurance Against Poverty Stefan Dercon (eds) UNU-WIDER Studies in Development Economics Oxford University Press, 2005 465 pp. ISBN 0199276838 Reducing risk-related vulnerability has moved up on both national and international development agendas, with major agencies such as the World Bank or the Asian Development Bank designing social protection programmes aimed at providing more secure living conditions in developing countries. Written by eminent economists, this book addresses the following three key questions: How important is risk for poverty? What lessons can be learned from studying existing, often informal, risk-sharing institutions for the design of broad-based social protection? What is the scope for designing new instruments for social protection? Alternating between theoretical arguments and case studies, contributions addressing the first question insist on the mutually-reinforcing nature of poverty and vulnerability: the poor are exposed to a variety of risks; the steps available to them to address risks can be costly and limited in effectiveness; and this may result in a poverty trap. As acknowledged by the editor, the question of risk and its consequences for the poor has already been much studied by researchers and academics in development economics (including by contributors of the book). However, by clarifying through new theoretical and empirical evidence the link, between risk, shocks and poverty persistence, the whole discussion shows that reducing vulnerability through policy interventions is not only crucial for poverty reduction but is also potentially growth-enhancing. By so doing, it should succeed in convincing the most reticent policy makers that social protection measures are not ‘unaffordable luxuries for poor countries’1 but rather tools with a developmental potential. However, M. Fafchamps's contribution also warns us: since full insurance freezes inequality, it can by no means be a substitute for redistribution.