Poverty traps: Exploring the complexity of causation

Poverty reduction, Hunger, Causations of poverty, health, Poverty traps, Nutrition, households,

Valuation and Evaluation: Measuring the Quality of Life and Evaluating Public Policy

This paper is about measuring social well-being and evaluating policy. Section 1 concerns the links between the two, while Sections 2 and 3, respectively, are devoted to the development of appropriate methods for measuring and evaluating. In Section 2 I identify a minimal set of indices for spanning a general conception of social well-being. The analysis is motivated by the frequent need to make welfare comparisons across time and communities. A distinction is drawn between current well-being and sustainable well-being. Measuring current well-being is the subject of discussion in Sections 2.2-2.3. It is argued that a set of five indices, consisting of private consumption per head, life expectancy at birth, literacy, and indices of civil and political liberties, taken together, are a reasonable approximation for the purpose at hand. Indices of the quality of life currently in use, such as the United Nations Development Programme’s (UNDP) Human Development Index, are cardinal measures. Since indices of civil and political liberties are only ordinal, aggregate measures of social well-being should be ordinal. In this connection, the Borda index suggests itself. In Section 2.3 the Borda index is used on data from 46 of the poorest countries in the early 1980s. Interestingly, of the component indices, the ranking of the sample countries in terms of life expectancy at birth is the most highly correlated with the countries' Borda ranking. Even more interestingly, the ranking of countries in terms of gross national product (GNP) per head is almost as highly correlated. There can be little doubt that this finding is an empirical happenstance. But it may not be an uncommon happenstance. If so, GNP per head could reasonably continue to be used as a summary measure of social well-being, even though it has no theoretical claims to be one. It is widely thought that net national product (NNP) per head measures the economic component of sustainable well-being. Section 2.4 and the Appendix show that this belief is false. NNP, suitably defined, can be used to evaluate economic policies, but it should not be used to make intertemporal and cross-country comparisons of the standard of living. In particular, comparisons of sustainable welfare should involve comparisons of wealth. For the purposes of comparing social well-being in an economy over time, often, one would analyze whether net investment is positive, negative, or nil. Writings on the welfare economics of NNP have mostly addressed economies pursuing optimal policies, and are thus of limited use. The analysis in Section 2.4 and the Appendix generalizes this substantially by studying environments where governments are capable of engaging only in policy reforms, in economies characterized by substantial non-convexities. The analysis pertinent for optimizing governments and convex economies are special limiting cases of the one reported here. In Sections 3.1-3.3 I explain that policy-evaluation techniques developed in the 1970s, while formally correct, neglected to consider (1) resource allocation in the wide variety of non-market institutions throughout the world, and (2) the role the environmental-resource base plays in society. It is argued that the evaluation of policy changes can be done effectively only if there is a fair understanding of the way socioeconomic and ecological systems would respond to the changes. The observation is no doubt banal, but all too often decisionmakers have neglected to model the combined socioeconomic and ecological system before embarking upon new policies or keeping faith in prevailing ones. Examples are provided to show that such neglect has probably meant even greater hardship for groups of people commonly regarded as particularly deserving of consideration. The examples are also designed to demonstrate how recent advances in the understanding of general resource allocation mechanisms and of environmental and resource economics can be incorporated in a systematic way into what are currently the best-practice policy evaluation techniques.

Learning-by-Doing, Market Structure and Industrial and Trade Policies

This paper addresses the nature of competition in an industry in which firms experience learning-by-doing. It identifies conditions under which competition leads to an emergence of monopoly and conditions under which competition persists. Certain distinguished industrial and trade policies are then studied. The per-se doctrine is examined. Conditions are located in which the infant industry is valid. By way of contrast, it is argued that, if foreign learning is likely to be vastly superior, there may be a case for import subsidies

The Genuine Savings Criterion and the Value of Population

Arrow, Dasgupta and Maler demonstrate thatin any dynamic model of the economy with changing population, population should properly be one of the state variables of the system. It enters both in the maxim and, at least under total utilitarianism, and into the production function in one way or another. If population growth is exponential and there are constant returns to scale, then a simple transformation to per capita variables can be used to eliminate one state variable. However, this simple transformation cannot be made if growth is not exponential, as it obviously is not and cannot be. If the growth of population is exogenous, then introducing it into the system does not affect the optimal policy. However, if one asks whether the system is sustainable, in the sense of at least maintaining total welfare (integral of discounted utilities), then the criterion is that the value of the rates of change of the state variables is non-negative, so that the shadow price of population becomes relevant. In this paper, we derive explicit formulas in a simple model, showing that the rate of growth of per capita capital is not the correct formula but must have other terms added to it. We also study the question under an alternative criterion of long-run average utilitarianism.

Evaluating Projects and Assessing Sustainable Development in Imperfect Economies

We are interested in three related questions: (1) How should accounting prices be estimated? (2) How should we evaluate policy change in an imperfect economy? (3) How can we check whether intergenerational well-being will be sustained along a projected economic programme? We do not presume that the economy is convex, nor do we assume that the government optimizes on behalf of its citizens. We show that the same set of accounting prices should be used both for policy evaluation and for assessing whether or not intergenerational welfare along a given economic path will be sustained. We also show that a comprehensive measure of wealth, computed in terms of the accounting prices, can be used as an index for problems (2) and (3) above. The remainder of the paper is concerned with rules for estimating the accounting prices of several specific environmental natural resources, transacted in a few well known economic institutions.Sustainable development, Imperfect economies

Project Appraisal and Foreign Exchange Constraints: A Simple Exposition

In an earlier paper, we showed that the value of shadow prices depends on how the government contemplates re- equilibrating the economy to the perturbation associated with any project, except in the extreme case where the government has chosen all policy instruments optimally. Only under restrictive conditions will relative shadow prices for traded goods equal relative international prices. We develop here a general methodology for calculating shadow prices, which expresses the prices as a weighted average of domestic and international prices. The formulae provide the conditions under which the border price rule is valid. For instance, so long as there are non-traded goods, even if the government leaves tariffs unchanged (so that relative domestic prices of traded goods remain unchanged), unless the government completely neutralizes the induced change in domestic income, there will be changes in the prices of non-traded goods. These will preclude the use of the border price rule.

Potential Competition, Actual Competition, and Economic Welfare

Offers ideas on welfare economics. Assessment of the reliance on welfare economics; Characteristics of the industrial sectors of economies