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ultra-poor poverty programs

All for One and One for All? Why Networks Don’t Prevent Poverty Traps: Guest post by Arun Advani

This is the fourth in our series of posts by PhD students on the job market this year.
Giving livestock to poor households can increase their incomes substantially. This naturally raises the question: why were households not investing in such livestock before? One obvious answer is that they are poor – this means they can neither afford to invest themselves, nor get a loan from a bank (or microfinance organisation). But the puzzle is more subtle than that. When facing a crisis, even very poor households borrow informally, from a network of friends, family, and neighbours, to fund consumption. In addition, households in these networks collectively have the resources needed to invest in livestock. So the real question is: why don’t households pool resources to allow investment? What makes borrowing to invest so different from borrowing to smooth consumption?