A Multidimensional Approach to Subjective Poverty Bernard van

A Multi-dimensional Approach to Subjective Poverty Bernard van Praag & Ada Ferrer-i-Carbonell Faculty of Economics and Econometrics, Tinbergen Institute, SCHOLAR, AIAS, University of Amsterdam Many Dimensions of Poverty, Brasilia August 2005

Subjective poverty • Poverty is an individual feeling and not an objective status • Operational definition of subjective poverty as being below a certain degree of satisfaction

Multi-dimensional poverty • We distinguish several domains of life, and consequently, several types of poverty. • It is justified to see poverty as a multi -dimensional concept. • Poverty 'with life as a whole' may be decomposed into poverty components with respect to life domains

Literature Goedhart, Halberstadt, Kapteyn, & van Praag, 1977. The Poverty Line: Concept and Measurement. The Journal of Human Resources, 12: 503 -520 Pradhan & Ravallion, 2000. Measuring poverty using qualitative perceptions of consumption adequacy. Review of Economics and Statistics, 82: 462 -471. Van Praag & Ferrer-i-Carbonell, 2004. Happiness Quantified: A Satisfaction Calculus approach. Oxford University Press, Oxford: UK.

Satisfaction question module

Subjective poverty i-poor My satisfaction with my financial situation is evaluated by i (i=3, 4, 5, 6, …) Different poverty classes, e. g. : Extremely poor Poor On the margin of being poor <4 =4 =5

Latent Variable Satisfaction

Estimation by Probit of and β • Poverty border lines: • Other domains (health, job, etc) are described by latent domain satisfaction variables : with thresholds:

Two layer model

Aggregate: General Satisfaction with life • . • Poverty is multi-dimensional • Domain poverties are correlated but much less than perfect (R 2 0. 5) • Overall poverty may be defined • Aggregate of domain poverties