Comparing Income Poverty with Multidimensional Well-being Based on the "Conversion Efficiency"

Abstract

Based on the literature regarding Sen’s capability approach, this work contributes to the empirical literature on multidimensional well-being by exploring whether a relationship exists between resources and how individuals convert their personal endowments. To control for conversion efficiency, differences in individual efficiency levels are estimated using the Stochastic Frontier Approach (SFA) in a production analysis, and efficiency scores are calculated at the individual level to capture the main factors leading to existing conversion inefficiency. Differences in individual living standards may also be caused by lower/higher efficiency in converting personal resources into income and well-being. Some determinants of efficiency levels for both poor and non-poor individuals are then investigated. Individual characteristics that can contribute to explaining the relationship between individuals’ resources and achieved functioning are further investigated, and an individual’s conversion efficiency is found to be positively affected by increased parental income, being married and living in an urban or eastern area. On the other hand, ageing and a larger household size decrease an individual’s conversion efficiency. Constraints in the conversion of given resource factors into achieved functioning can be caused by personal, environmental or social factors. These conversion factors determine why one individual achieves higher functioning output than someone else with the same input.