Considerations of Efficiency and Distributive Justice in Multidimensional Poverty Measurement

Abstract

From the nineteen-eighties onwards, Amartya Sen developed a new welfare theory: the capability approach (Sen, 1979; 1985; 1992; 1999; 2009). Capabilities and functionings, i.e. what persons are actually able to do and be, replace the traditional income approach as the subject of analyses. Poverty under the capability approach is the failure to achieve a minimum set of central capabilities needed in order to pursue whatever one has reason to value in life. The capability approach has so many intriguing advantages, especially when it comes to measuring poverty, that it gains traction within the area of welfare economics. This trend is being fuelled by the empirical applications of this multidimensional approach to poverty measurement which provide evidence that it produces rather different results than the traditional income approach (e.g. Klasen, 2000, Alkire and Santos, 2010, Figari, 2012). There exists, however, a methodological weakness in the current multidimensional approach: inequality between poverty dimensions is either defined as association-sensitivity – thus accounting for efficiency but not for distributive justice – or as the spread of simultaneous deprivations across society – thus accounting for distributive justice but not for efficiency. The first two essays of this thesis are dedicated to overcome this methodological weakness. Starting point is the suggestion to define inequality between dimensions as the ‘association-sensitive spread of simultaneous deprivations across society’. The first two essays deal with the operationalisation of this extended definition in the case of ordinal and cardinal poverty indices. In particular, this part of the thesis introduces a new axiom for the ordinal and the cardinal case that conditions the extent to which an inequality increasing switch increases (or decreases) poverty on the relationship between poverty dimensions. The thus extended axiomatic foundation is utilised to derive a new class of ordinal and cardinal poverty indices, respectively. These two classes are the first classes of additive poverty indices that are able to account for inequality as well as association-sensitivity. The third essay finally uses the German Socio-Economic Panel in order to propose two ordinal poverty indices for Germany that are based on the new method developed in the first part of the thesis: the ‘German Correlation Sensitive Poverty Index’ and the ‘Subjective Correlation Sensitive Poverty Index’. These two indices are compared to the official income poverty measure of Germany, the ‘At-Risk-of-Poverty Rate’, across dimensions, regions and over time. The results seem to indicate one thing above all: the significant differences in the evaluation of poverty and poverty trends induced by the different indices and the high added value that is created through the operationalisation of the capability approach.