HOUSEHOLD MODELING FOR THE DESIGN OF POVERTY ALLEVIATION STRATEGIES1 by

Insufficient access to assets is the main determinant of poverty. We analyze the role of access to assets in explaining household labor allocation strategies, sources of income, levels of income achieved, and poverty headcount ratios among classes of Mexican rural households. To assess the gains from asset redistribution, we both measure the direct income effects from redistribution and simulate the general equilibrium effects of redistribution in a computable non-separable household model. Results show that land redistribution allows to achieve both equity and efficiency gains. However, there are economies of scale in self-employment in microenterprise, human capital assets for labor market participation, and social capital for international migration, implying conflicts between equity gains and social efficiency in redistributing these assets towards those with lower endowments. I. Assets and poverty Insufficient asset entitlements is the main determinant of poverty. For rural households, who typically pursue multiple sources of income, assets that determine the choice of income earning strategies and the levels of income achieved are quite diverse. In agriculture, they include land, irrigation, productive capital, and livestock for direct production and organizational capital for the reduction of transactions costs in accessing markets. For wage earnings on the labor market, they include the number of adults in the household who can participate the labor market and the level of human capital embodied in each. For self-employment in microenterprise activities, they include 1 Paper submitted for presentation at the European Association of Agricultural Economists VIII Congress, Edinburgh, Scotland, September 3-7, 1996.