Abstract
Using detailed geographical and household survey data from Nepal, this article investigates the relationship between isolation and subjective welfare. We examine how distance to markets and proximity to large urban centers are associated with responses to questions about income and consumption adequacy. Results show that isolation is associated with a significant reduction in subjective assessments of income and consumption adequacy, even after controlling for consumption expenditures and other factors. The reduction in subjective welfare associated with isolation is much larger for households that are already relatively close to markets. These findings suggest that welfare assessments based on monetary income and consumption may seriously underestimate the subjective welfare cost of isolation.
Highlights
While much has been written on the relationship between geographical location and objective measures of consumption and welfare (e.g. Elbers, Lanjouw & Lanjouw 2003, Jalan & Ravallion 2002, Ravallion & Jalan 1996, Ravallion & Jalan 1999, Ravallion & Wodon 1999), little is known on how isolation affects subjective welfare
Using 1995/96 household survey data from Nepal, we have estimated the relationship between geographical isolation and subjective welfare
This estimation rests on the assumption that responses to questions about income and consumption adequacy capture utility rankings
Summary
While much has been written on the relationship between geographical location and objective measures of consumption and welfare (e.g. Elbers, Lanjouw & Lanjouw 2003, Jalan & Ravallion 2002, Ravallion & Jalan 1996, Ravallion & Jalan 1999, Ravallion & Wodon 1999), little is known on how isolation affects subjective welfare. This paper revisits the question of the relationship between isolation and subjective welfare and estimates the welfare cost of geographic isolation To this effect, we use answers to subjective questions about consumption and income adequacy to test whether utility is equalized across space and, if it is not, whether utility is higher or lower in isolated areas. We use answers to subjective questions about consumption and income adequacy to test whether utility is equalized across space and, if it is not, whether utility is higher or lower in isolated areas This approach enables us to investigate in a direct and straightforward manner the question of the relationship between isolation and utility without requiring any assumption about spatial mobility
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