Introduction
Many of the conditions that destabilize food prices in developing countries also have a direct impact on incomes. Indeed, this is one of the key elements of Sen’s (1981) perspective on famine. For example, when local grain prices rise in the wake of a natural disaster, the pressure on the purchasing power of the poor from the price rise is often accompanied by reduced production and earnings of farmers, agricultural laborers, and small enterprises. In such circumstances addressing food availability will not fully mitigate the impact of the shock. Thus, a basic tool in risk management includes safety nets to maintain purchasing power of the poor. These are often informal or market based, but in many contexts such pillars of risk response prove inadequate.
Despite extensive research on publicly supported safety nets in developing countries, however, far more is known about how to achieve their income transfer function than is understood about their insurance function, either following a natural
disaster or in the downturn of an economic cycle. While many core principles of safety nets are shared over both objectives, they differ in three broad categories. First, to serve an insurance function safety nets need to have a counter-cyclical budget so that they can be scaled up as need increases. Second, they need to be able to target on transitory need rather than more chronic correlates of poverty and, finally, they need a flexible implementation strategy. This overview will address these three considerations in turn, although it is clear that, while the issues can be separated conceptually, they interact in the process of program design.
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