Escaping the Poverty Trap 

To escape poverty traps induced by natural disasters, low-income households need assistance from public and private partnerships informed by risk analysis and based on local needs. The Risk, Policy and Vulnerability Program (RPV) in 2011 analyzed the effects of systemic risk on the incomes and livelihoods of low-income households, including farmers, focusing on South Asia, one of the world’s most disaster-prone regions.

A central question is how extreme events can trap people in poverty. The research focuses on assessing the type and scale of such poverty traps and identifying mechanisms to help overcome them. Of particular concern are the livelihoods of small farmers, for whom natural disasters are the primary sources of risk. Although many conceptual studies of poverty traps have been done, very few empirical and quantitative insights exist, and assessments have
generally been based on deterministic analysis.

IIASA researchers Stefan Hochrainer and Reinhard Mechler, with regional collaborators, surveyed about 320 households in Uttar Pradesh, one of India’s largest and poorest states,
and facing a multiple climate hazards. Of the households surveyed, 53% lived below the poverty line defined by the Indian government, while 69% had at least one outstanding
loan, and a quarter had no savings. During the 1998 Uttar Pradesh flood, losses affecting all income groups were 43% of total annual household income, but the very poor experienced losses of more than 70%.

With 73% of people reporting that their household income was insufficient for coping, researchers realized that much more comprehensive adaptation packages, combining risk reduction, risk financing, and risk communication, were needed. To this end, recent model analysis by IIASA on coping with drought in Uttar Pradesh suggests that the greatest local and societal benefits are achieved through integrating micro-insurance with physical adaptation measures. People cope with drought more effectively if they are capacitated to irrigate fields to reduce the risks from commonly occurring, less-serious droughts and if subsidized micro-insurance is purchased to cover losses from rare but catastrophic droughts. The research shows, importantly, that farmers are in dire need of donor support for adaptation tailored to their specific needs and circumstances.

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Last edited: 31 August 2012