Capabilities measurement: an empirical investigation

Sen’s seminal contribution highlights the importance of positive freedom in the measurement of human welfare. The present paper attempts to measure this freedom aspect in an integrated approach. The main contribution of the paper is the simultaneous estimation of capability, functioning, and conversion efficiency with explicit modeling of freedom by latent variable modeling approach. The knowledge dimension of capabilities is modeled and estimated by integrating exploratory and confirmatory statistical methods in a two-stage procedure. In the first stage, Partial Least Squares method is employed to construct latent variable scores. These scores are transformed to relative scores for the sake of comparison and then used to estimate the proposed simultaneous-equation capability model by 3SLS in the second stage. The results show that capability is inversely related to resources and positively related to freedom and functioning. The computed relative capability and freedom inequality ratios are very high whereas relative functioning and efficiency inequality ratios are at a moderate level. The conventional income inequality ratio is lower as compared to the capability dimensions’ ratios and close to the Gini-coefficient. The paper extended the measurement of conversion inefficiency into voluntary and involuntary inefficiency. The paper also suggests criteria for evaluating empirical research within the capability approach framework. The paper recommends development of specific survey instruments in order to create better indicators for capability dimensions and use of latent variable modeling for constructing latent variable scores, and their subsequent use in estimation. These findings suggest a capabilities-oriented public and education policies for the enhancement of knowledge dimension of capabilities in particular and human welfare in general. The focus of education policy should be extended from investment oriented (human capital approach) to value-oriented (human capability approach).Capabilities; Freedom; Functioning; Conversion Efficiency; Latent variables; Structural equations model; PLS; LISREL; 3SLS

Ordinal and Cardinal Measures of Health Inequality - An Empirical Comparison

When measuring health inequality using ordinal data, analysts typically must choose between indices specifically based upon ordinal data and more standard indices using ordinal data which has been transformed into cardinal data. This paper compares inequality rankings across a number of different approaches and finds considerable sensitivity to the choice between ordinal and cardinal based indices. There is relatively little sensitivity to the ethical choices made by the analyst in terms of the weight attached to different parts of the distribution.Inequality, cardinal, ordinal

Income Inequality, Cohesiveness and Commonality in the Euro Area: A Semi-Parametric Boundary-Free Analysis

The cohesiveness of constituent nations in a confederation such as the Eurozone depends on their equally shared experiences. In terms of household incomes, commonality of distribution across those constituent nations with that of the Eurozone as an entity in itself is of the essence. Generally, income classification has proceeded by employing “hard”, somewhat arbitrary and contentious boundaries. Here, in an analysis of Eurozone household income distributions over the period 2006–2015, mixture distribution techniques are used to determine the number and size of groups or classes endogenously without resort to such hard boundaries. In so doing, some new indices of polarization, segmentation and commonality of distribution are developed in the context of a decomposition of the Gini coefficient and the roles of, and relationships between, these groups in societal income inequality, poverty, polarization and societal segmentation are examined. What emerges for the Eurozone as an entity is a four-class, increasingly unequal polarizing structure with income growth in all four classes. With regard to individual constituent nation class membership, some advanced, some fell back, with most exhibiting significant polarizing behaviour. However, in the face of increasing overall Eurozone inequality, constituent nations were becoming increasingly similar in distribution, which can be construed as characteristic of a more cohesive society

Understandings and Misunderstandings of Multidimensional Poverty Measurement

Multidimensional measures provide an alternative lens through which poverty may be viewed and understood. In recent work we have attempted to offer a practical approach to identifying the poor and measuring aggregate poverty (Alkire and Foster 2011). As this is quite a departure from traditional unidimensional and multidimensional poverty measurement – particularly with respect to the identification step – further elaboration may be warranted. In this paper we elucidate the strengths, limitations, and misunderstandings of multidimensional poverty measurement in order to clarify the debate and catalyse further research. We begin with general definitions of unidimensional and multidimensional methodologies for measuring poverty. We provide an intuitive description of our measurement approach, including a ‘dual cutoff’ identification step that views poverty as the state of being multiply deprived, and an aggregation step based on the traditional Foster Greer and Thorbecke (FGT) measures. We briefly discuss five characteristics of our methodology that are easily overlooked or mistaken and conclude with some brief remarks on the way forward.

Ordinal Variables and the Measurement of Polarization

This paper aims at proposing measures of polarization for the distribution of a variable when information on the latter is only ordinal. The measures proposed are borrowed from the recent literature on the measurement of segregation. An empirical illustration is given, based on the European Union Statistics on Income and Living Conditions (EU-SILC) for the year 2008. The ordinal variable refers to the ?ability to make ends meet? and polarization is measured between groups defined by the citizenship of the household member who answered the household questionnaire. Results show that Luxembourg and Estonia have the highest degree of polarization whereas Cyprus, Ireland and the United Kingdom display the lowest degree.polarization; ordinal information; EU-SILC; segregation

Conditions for the Most Robust Poverty Comparisons Using the Alkire-Foster Family of Measures

In the burgeoning literature on multidimensional poverty indices, the Alkire-Foster (AF) measures stand out for their resilience in identifying the multidimensionally poor with cut-off criteria covering the spectrum from the union approach to the intersection approach. The intuitiveness and easy applicability of the measures’ identification and aggregation methods are reflected in the increasing use of the AF measures in poverty measurement, as well as in other fields. This paper extends the dominance results derived by Lasso de la Vega (2009) and Alkire and Foster (2010) for the adjusted headcount ratio and develops a new condition whose fulfillment ensures the robustness of comparisons using the adjusted headcount ratio for any choice of multidimensional cut-off and for any weights and poverty lines. The paper then derives a first-order dominance condition for the whole Alkire-Foster family (that is, for continuous variables).

Cardinal Scales for Public Health Evaluation

Policy studies often evaluate health for a population by summing the individuals’ health as measured by a scale that is ordinal or that depends on risk attitudes. We develop a method using a different type of preferences, called preference intensity or cardinal preferences, to construct scales that measure changes in health. The method is based on a social welfare model that relates preferences between changes in an individual’s health to preferences between changes in health for a population.public health evaluation; social welfare; preference intensity; health state

A consistent multidimensional Pigou-Dalton transfer principle

The Pigou-Dalton principle demands that a regressive transfer decreases social welfare. In the unidimensional setting this principle is consistent, because regressivity in terms of attribute amounts and regressivity in terms of individual well-being coincide in the case of a single attribute. In the multidimensional setting, however, the relationship between the various attributes and well-being is complex. To formulate a multidimensional Pigou-Dalton transfer principle, a concept of wellbeing must therefore first be defined. We propose a version of the Pigou-Dalton principle that defines regressivity in terms of the individual well-being ranking that underlies the social ranking on which the principle is imposed. This well-being ranking (of attribute bundles) is induced from the social ranking over distributions in which all individuals have the same attribute bundle. It is shown that this new principle—the consistent Pigou-Dalton principle—imposes a quasi-linear structure on the well-being ranking. We discuss the implications of this result within the literature on multidimensional inequality measurement and within the literature on needs.Pigou-Dalton principle, Multidimensional inequality measurement, Majorization, Budget dominance, Needs, Weak equity axiom

Have Econometric Analyses of Happiness Data Been Futile? A Simple Truth About Happiness Scales

Econometric analyses in the happiness literature typically use subjective well-being (SWB) data to compare the mean of observed or latent happiness across samples. Recent critiques show that comparing the mean of ordinal data is only valid under strong assumptions that are usually rejected by SWB data. This leads to an open question whether much of the empirical studies in the economics of happiness literature have been futile. In order to salvage some of the prior results and avoid future issues, we suggest regression analysis of SWB (and other ordinal data) should focus on the median rather than the mean. Median comparisons using parametric models such as the ordered probit and logit can be readily carried out using familiar statistical softwares like STATA. We also show a previously assumed impractical task of estimating a semiparametric median ordered-response model is also possible by using a novel constrained mixed integer optimization technique. We use GSS data to show the famous Easterlin Paradox from the happiness literature holds for the US independent of any parametric assumption