Heterogeneous wealth dynamics: On the roles of risk and ability

Herd dynamics of Boran Pastoralists Contemporary policy debates are rife with discussions of “poverty traps” which describe structural features of the state of poverty that cause it to persist. Different factors may give rise to different types of poverty traps: there may be groups within a population for whom there exists a unique equilibrium associated with persistent poverty and others who face multiple equilibria and thus face wealth dynamics conditioned by their starting positions. As the policy implications of the different poverty-trap generating mechanisms are markedly different, it is important to identify the causal mechanisms behind apparent poverty traps. The research described in this brief investigates the wealth dynamics of Boran pastoralists in southern Ethiopia and highlights the role that poor weather and herder-specific ability to cope with such shocks play in conditioning wealth dynamics. Building on recent evidence of nonlinear herd dynamics consistent with the hypothesis of poverty traps, the authors find that Boran pastoralists with low ability converge towards poverty regardless of the herd size with which they start with, while those of higher ability exhibit multiple wealth equilibria.